Monday, November 02, 2015

A lab experiment: visibility of wealth increases wealth inequality

Nishi et al. do a fascinating laboratory experiment conducted online showing that when people can see wealth inequality in their social network, this propels further inequality through reduced cooperation and reduced social connectivity. From a summary by G├Ąchter
Nishi and colleagues' experimental model used an assessment of people's willingness to contribute to public goods to test how initial wealth inequality and the structure of the social network influence the evolution of inequality...can mere observation of your neighbour's wealth lead to more inequality over time, even if such information does not change economic incentives? Visible wealth might have a psychological effect by triggering social comparisons and thereby influencing economic choices that have repercussions for inequality.
...the researchers endowed all participants with tokens, worth real a treatment without inequality, all participants initially received the same number of tokens; in a low-inequality treatment, participants had similar but different initial endowments; and in the high-inequality treatment there was a substantial starting difference between participants...A crucial manipulation in this experiment was wealth visibility. Under invisible conditions, the participants could observe only their own accumulated wealth. Under visibility, they could see the accumulated wealth of their connected neighbours but not the whole network....
The groups typically comprised 17 people arranged at random in a social network in which, on average, about 5 people were linked ('neighbours'). In each of the 10 rounds of the following game, participants had to decide whether to behave pro-socially ('cooperate') by reducing their own wealth by 50 tokens per connected neighbour to benefit each of them by 100 tokens, or to behave pro-selfishly ('defect') by keeping their tokens for themselves. These decisions had consequences for accumulated wealth levels and inequality. At the end of each round, the subjects learnt whether their neighbours had cooperated or defected and 30% of participants were given the opportunity to change their neighbour, that is, to either sever an existing link or to create a new one.
The authors find that, under high initial wealth inequality, visibility of neighbours' accumulated wealth increases inequality over time relative to the invisibility condition.
Here is the abstract from Nishi et al.:
Humans prefer relatively equal distributions of resources, yet societies have varying degrees of economic inequality. To investigate some of the possible determinants and consequences of inequality, here we perform experiments involving a networked public goods game in which subjects interact and gain or lose wealth. Subjects (n = 1,462) were randomly assigned to have higher or lower initial endowments, and were embedded within social networks with three levels of economic inequality (Gini coefficient = 0.0, 0.2, and 0.4). In addition, we manipulated the visibility of the wealth of network neighbours. We show that wealth visibility facilitates the downstream consequences of initial inequality—in initially more unequal situations, wealth visibility leads to greater inequality than when wealth is invisible. This result reflects a heterogeneous response to visibility in richer versus poorer subjects. We also find that making wealth visible has adverse welfare consequences, yielding lower levels of overall cooperation, inter-connectedness, and wealth. High initial levels of economic inequality alone, however, have relatively few deleterious welfare effects.

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