Inequity Aversion

What is inequity aversion?

Inequity aversion is a preference against unequal outcomes, particularly differences between one's own payoff and other people's payoffs. It can include discomfort with receiving less than others and, to a different extent, with receiving more.

Fehr and Schmidt’s model (1999) explains how such preferences can affect bargaining, cooperation and punishment. It allows people to differ, and the setting determines how strongly fairness preferences influence behavior.

Example of inequity aversion

Imagine two people dividing a payment. One might reject a small share even though rejection leaves them with nothing, because the unequal split is unacceptable to them. Another might voluntarily give up some of an unusually large share. These illustrate disadvantageous and advantageous inequity aversion, respectively; people can differ in how strongly they dislike each.

Inequity, equality and fairness

Inequity aversion is not a claim that everyone prefers equal allocations. Judgments of fairness can also depend on effort, entitlement, intentions and the process that produced an outcome. The model isolates payoff inequality as one explanation.