Guilt moderation

Abstract

We propose and axiomatize the inequality-averse model with rank-dependent (dis-)utility under risk and uncertainty. The model highlights an important linkage, Guilt Moderation, between different other-regarding behaviors: when choices are risky, decision maker feels less guilt by assigning more weight to the fairer outcomes, creating a tendency to exhibit self-centered (or altruistic) behavior when outcomes are mixed with a fairer (or unfairer) outcome. Our model provides a unifying explanation for two seemingly distinct reversal behaviors known in the literature as moral wiggle room and ex-ante fairness for you that put into question the consistency of attitudes towards inequality in the presence of uncertainty. Moreover, we characterize guilt moderation with the reversal behaviors and risk preference for others. Lastly, the model sheds light on the self-other risk attitudes gap and increased envy in wage transparency.