DOI: 10.1002/mde.3952 ISSN:

A Bayesian approach of the consequence of failure on inequality acceptance: Experimental evidence

Emillien Prost, Gaye‐Del Lo
  • Management of Technology and Innovation
  • Management Science and Operations Research
  • Strategy and Management
  • Business and International Management
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Abstract

In this paper, we design a two‐stage experiment and a tractable model. The first stage is a tournament, and the second stage involves a hierarchical relationship where the loser of the tournament must declare what they think is an acceptable earnings distribution to have an incentive to work for the winner. We use a Becker–Degroot–Marschak (BDM) procedure to elicit the acceptable earnings distribution. We show that failure in the tournament could decrease the willingness to accept wage inequality and that this behavior relies on Bayesian updating. We identify a “fresh start” effect: When the asset required to win the tournament is not the same as the asset that the loser uses to produce after failure, inequality acceptance is higher.

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