Behavioural economics: Preserving rank as a social norm

Abstract

Humans have social preferences, and their utility depends on the payoffs of other relevant individuals. Prominent models of social preferences suggest that people dislike disparities in income, particularly when at a disadvantage1,2,3. Payoff inequality generates disutility even for an impartial observer4. However, despite such an appealing equality norm5, the degree of inequality is increasing in most developed countries, as shown in an update from the Organisation for Economic Co-operation and Development (OECD; ref. 6). Moreover, while periods of rapid growth like Les Trente Glorieuses (the thirty years of growth, prosperity, and abrupt social change from 1945 to 1975) have boosted social-ladder climbing in several countries, this has not led to a replacement of previous hierarchies. It is only during exceptional periods such as political and economic revolutions that both income distribution and the hierarchy of positions within a society seem to change. While some scholars have promoted the idea that education, the decline of labour institutions, and conservative capital taxation guarantee the reproduction of the elites and the rich getting richer7, the aversion of individuals to the reversal of the established hierarchy has contributed to making the preservation of a given hierarchy a powerful social norm. A paper by Xie et al. published in this issue of Nature Human Behaviour reports the results of a cross-cultural experiment conducted in laboratories, in the field in China, and on Amazon Mechanical Turk with Indian and American workers8. The authors study whether third-party willingness to compress the income gap between two persons is sensitive to the consequences in terms of income ranking. In the type 1 treatment, a reduction in inequality was accompanied with a reversal of relative rank. In the type 2 treatment, redistribution led to a similar distribution of final payoffs, but without changing these ranks. Additional treatments were added to control for the impact of the transfer size of these two treatments without altering the payoff hierarchy. While 23% of the subjects in the main sample refused to redistribute income from rich to poor when rank was preserved, 55% rejected redistribution when it changed the hierarchy. This finding of rank reversal aversion is a major one for researchers interested in exploring how inequality norms develop in societies. This finding is noteworthy in that the setting has constant social efficiency and randomly assigned ranks. Indeed, it shows that not only is equality an appealing norm, but so also is the preservation of hierarchy and status; there is tension when these two norms conflict. Another major contribution of this study is the demonstration that while children develop inequality aversion around 4–5 years old, rank reversal aversion emerges as early as 6–7 years and progresses between the ages of 7 and 10. Refusing to reduce inequality when this reverses rank shows that distributional preferences cannot be reduced to simple inter-individual comparisons of final outcomes. Rank reversal aversion is consistent with loss aversion and the fact that a demotion in terms of rank triggers a more negative effect on motivation than a promotion boosts effort9. This calls for the development of new behavioural models of social preferences that include rank in addition to payoff comparisons. The results with an additional sample of Tibetan herders are especially interesting with respect to institutions and social norms. A remarkably high proportion of their refusals to redistribute occurred when redistribution meant reversing ranks (see Fig. 2b in the paper by Xie et al.8). This suggests that less exposure to market integration leads to a less general BEHAVIOURAL ECONOMICS

DOI: 10.1038/s41562-017-0137

Cite this paper

@article{Charness2017BehaviouralEP, title={Behavioural economics: Preserving rank as a social norm}, author={Gary Charness and Marie Claire Villeval}, journal={Nature Human Behaviour}, year={2017}, volume={1} }