Character  &  Context

How Fairness Leads to Waste (and One Way to Prevent It)

Image of woman holding blindfold over her eyes

By: Shoham Choshen-Hillel, Alex Shaw, and Eugene M. Caruso

We know of a psychology lab where graduate students were all using standard computers. One day the lab purchased a new state-of-the-art iMac. The lab manager had to make the following decision: either let one of the graduate students use the new iMac, or let no one use it. Although letting no one use it sounds wasteful, the lab manager had the intuition that because not everyone could have the benefit of using this new computer, it would be more fair if no one got to use it. He decided to let the new computer sit on the shelf.

The lab manager’s strategy turns out to be a common one. In our research, we have found that people tend to opt for equal allocations even when it leads to wasting resources. For example, we find that people report that they would rather give each of two equally deserving employees a $100 gift card than give a $100 gift card to one and a $150 gift card to the other, even if the additional $50 card is about to expire and will therefore be wasted if not given away.

In a recent paper published in the Journal of Personality and Social Psychology (Choshen-Hillel, Shaw, & Caruso, 2015), we explore how to reduce the tendency to make equitable but wasteful allocations. If people believe that inequity (unequal pay for equal work) is inherently unfair, then they should be reluctant to create inequity, and waste is inevitable. However, we argue that people try to avoid inequity not because they dislike inequity per se, but because they do not want to appear partial – they do not want to be perceived as favoring one party over the other (Shaw, 2013). We therefore predict that people will be willing to create inequity in cases where doing so is not associated with being partial. One such case occurs when allocators could potentially disadvantage themselves when creating an unequal allocation. For example, suppose the aforementioned lab manager had asked one of the students in the lab named Heather, who was working with a standard computer, to decide whether one of her fellow students, Jane, should get to use the new iMac, or whether the iMac should sit idle. According to our prediction, Heather (who would be putting herself at a relative disadvantage by allowing Jane to use the better computer) would be more likely than the lab manager to say Jane should use the iMac. The reason is that even though Heather’s decision will create inequity, it will appear less partial than the lab manager’s decision; by giving someone else more than herself, Heather’s decision should be perceived as fair, if not laudable.

Our studies support this hypothesis, showing that allocators who are relatively disadvantaged by an allocation are indeed less likely to waste resources in the name of equity (compared with allocators who are only disadvantaging others). For example, participants who were asked to imagine that they and another equally deserving employee were each given a $100 gift card tended to choose to give an extra $50 gift card to the other employee, rather than throw it away. Thus, they wasted far fewer resources than participants who were asked to make the same decision regarding third parties. In further studies we establish that this effect is a direct result of people’s concern about appearing partial

We obtained similar results when we had people make consequential decisions about how much participants in the lab should be paid. In one study, we emailed participants who had recently participated in a lab study, and told them that we could pay future participants either a little more or the same amount as past participants. To ensure participants’ genuine responses, we did not disclose that our question was part of a study and simply asked them to vote. One group of participants had previously completed the same study they were voting on (so choosing to pay the next participants more would disadvantage them) and the other group had previously completed other studies in the lab, but not the study they were voting on (so they would only be disadvantaging others). In line with our hypothesis, participants who would disadvantage themselves were less likely to waste resources in the name of equity (i.e., they voted to pay other participants a higher wage) than participants who would only disadvantage others.

Our findings lead to the following policy recommendation: Policy makers looking to reduce inefficiency should find ways to empower potentially disadvantaged allocators to make such allocations themselves. Consider the following illustration of how this recommendation could work. Many organizations, like sports teams and universities, face a dilemma when changes in the market lead new employees to receive a higher salary than some current employees who do the same job. Managers or administrators might want to offer these higher salaries to attract the best new employees in the market. Yet if they decide to do so, they might anger the existing employees. Our research suggests a solution to this dilemma: Rather than asking the managers to make this decision, the company should instead ask the existing employees (who might be relatively disadvantaged by the new salaries) to take part in this decision. Anecdotally, this precise scenario occurred at a prominent U.S. business school; the salaries for new faculty members in the market were higher than those of current junior faculty. Instead of making the decision themselves, the school administration asked the existing faculty to vote on the salary for the new faculty. Consistent with our hypothesis, the current faculty voted in favor of awarding the new faculty higher salaries. Thus, this policy creates a “win-win” situation that enables more efficient allocations while avoiding dissatisfaction with the resulting inequity (Choshen-Hillel & Yaniv, 2011).

In summary, we find that changing the implied partiality of an allocation drastically changes people’s preference for inequitable allocations. This finding gets us one step closer to understanding people’s beliefs about what constitutes a fair allocation, and can be used to improve allocation policies and to further reveal the psychological primitives that underlie people’s decisions about what, when, and with whom to share.

 

Shoham Choshen-Hillel just finished her postdoc at Booth School of Business, University of Chicago. She is now a senior lecturer at the School of Business Administration, the Hebrew University of Jerusalem, Israel. Shoham.choshen@mail.huji.ac.il

Alex Shaw just finished his postdoc at Booth School of Business, University of Chicago. He is now an assistant professor at the Psychology Department, University of Chicago, Ashaw1@uchicago.edu

Eugene M. Caruso is an associate professor at Booth School of Business, University of Chicago, eugene.caruso@chicagobooth.edu

 

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