Coupled Lotteries - a New Method to Analyze Inequality Aversion

Abstract

We develop and implement a new measure for inequality aversion: two peers are endowed with identical binary lotteries and the only choice they make is whether they want to play out the lotteries independently or with perfect positive correlation (coupling). Coupling has the core reason to prevent outcome inequality. We implement the method in a survey in rural Thailand as well as in a supplemental sample in a lab in Germany. In line with previous literature, coupling is related to being more risk averse, to having social status concerns, and to relying more often on formal and informal insurance. However, coupling is not related to giving in the dictator game.