6.1. Sample
Overall, 147 undergraduate students participated in the experiment—63 from the University of Milan-Bicocca, 42 from the University of Piemonte Orientale and 42 from the University of Turin. They were recruited through a web-based recruitment system. Since subjects’ choices were not significantly different across locations, we performed our analysis on the pooled sample
19.
At the end of each experimental session, we collected data concerning participants’ socio-demographic characteristics and attitudinal views about society and risk tolerance through a questionnaire. This allowed us to test to what extent these issues played a role in determining people’s choices.
Concerning socio-demographic characteristics, we collected data on age, gender, religious affiliation, volunteering activities, job, political orientation and school career. Forty-two percent of our sample was male. On average, they were 24 years old and 28% were workers. Sixty-six percent were believers (60% Catholics) and 35% were volunteers. Thirty-six percent were centre-left/left-wing politically, while 28% were center-right/right-wing. Examining subjects’ school careers, only 17% scored less than 70 as a high-school final mark, while 80 were both the mean and the median value
20.
A second set of questions focused on the reasons why some people succeed in life while some others fail. More specifically, we asked subjects: “Below are listed several reasons why some people get ahead and succeed in life and others do not. Using a 1–5 scale, where ‘1′ means “Of no significance” and ‘5′ means “extremely important”, please tell me how important each factor is as a reason for a person’s success: (a) willingness to take risk; (b) money inherited from families; (c) hard work and initiative; (d) ability or talent a person is born with; (e) good looks; (f) connections; (g) being a member of a particular race or ethnic group; (h) getting the suitable education; (i) gender”. For each item, subjects must select a value from 1 to 5 where 1 means ‘Of no significance’ and 5 means ‘extremely relevant’. Since it was possible to identify two classes of factors—intrinsic and contextual—we constructed two indices. The SKILL_INDEX was computed as the mean of the values subjects selected for items (a), (c), (d) and (h), while the PERSONAL_INDEX was the mean of subjects’ choices for the remaining items. Overall, people seemed to consider intrinsic factors more relevant than contextual ones. In fact, the average value of the SKILL_INDEX was significantly higher than the average value of the PERSONAL_INDEX (4.07 vs. 3.05, Wilcoxon test, p = 0.000).
In the questionnaire, we detected participants’ attitude towards the Welfare State. Subjects were asked: “Which of the following sentences is more in line with your way of thinking?: (A) We should live in a society where the government is large even if taxes are high or (B) we should live in a society where the tax burden is low but everyone should take care of herself".
Approximately 60% of our experimental subjects selected option A.
Two further questions concerned participants’ perception of their status, both in the lab and in real life. First, before performing the task, we asked them to predict the category to which they would belong. Then, we asked about their expectations for the future through the following question: “In Italy, people like you and your family are likely to improve their standard of living”. Subjects must select a value from 1 to 5 where 1 means ‘I do not agree at all’ and 5 means ‘I completely agree’.
Approximately 33% of the participants thought that they would fall in the rich group, while 56% thought they would belong to the middle class. Only 11% believed they would fall in the poor category. Only 39% of the subjects were correct in their prediction. Concerning people’s expectations for the future, the group was largely pessimistic: Half of them did not agree that they would have the opportunity to improve their standard of living, while less than 2% completely agreed they would have that opportunity.
Finally, subjects’ attitude towards risk was measured through a set of questions asking: “What is your attitude towards risk for each of the specific contexts? (a) Car driving; (b) money matters; (c) leisure and sport activities; (d) career and (e) health”. For each item, subjects had to tick a value from 0 to 10 where 0 means ‘Completely risk averse’ and 10 means ‘Completely willing to accept risk’. We then computed two indices: The FINANCIAL_RISKi index was computed as the mean of the values subject i selects for items (b) and (d), while the PHYSICAL_RISKi index was the mean of subject i’s tolerance in the remaining items. In our sample, people were more willing to take financial risks than physical ones (5.52 vs. 4.72; Wilcoxon test, p = 0.000).
In the next session we would examine whether and to what extent these characteristics influence subjects’ decision-making process.
6.2. Results
Result 1. Subjects’ choices were driven by self-interested considerations both under the veil of ignorance and when the veil drops.
Under both the VOI and the NO_VOI scenario, the most favored contract was the actuarially fair one—the Individualistic Welfare State. The second most favored state was the Prioritarian state based on a progressive tax system. Even if choices under the two scenarios seem to be in line, however, when we studied subjects’ coherence in the two situations, it turns out that only 78 subjects out of 147 confirmed their choice once the veil was lifted. Thus, 69 subjects revised their choice (see
Table S1).
How can we explain this result? The key point was to try and understand what factors drive people’s choices in both scenarios and lead most of them to switch when the veil drops. Since people could choose among three possible options in each scenario that could be ordered in terms of redistributive power, we selected the ordered-probit model as the most suitable econometric tool
21. The two specifications were (see
Table S2):
where:
CHOICE_VOIi is subject i’s preferred contract under the VOI scenario;
GUESS_FIRSTi is a dummy variable equal to 1 if subject i thinks (s)he will be in the first category (rich);
GUESS_LASTi is a dummy variable equal to 1 if subject i thinks (s)he will be in the third category (poor);
WELFARE_STATEi is a dummy variable equal to 1 if subject i chooses option A in the question aimed at detecting his/her attitude towards the Welfare State and 0 otherwise;
STATUS_IMPROVEMENTi is a variable reporting subject i’s answer to the question detecting his/her level of agreement concerning the opportunity to improve his/her standard of living in the future;
DEMOG
i is a series of demographic controls including age, gender, religious belief, volunteering activities, job and political orientation
22;
RISK_INDICESi are the two measures of risk: FINANCIAL_RISKi and PHYSICAL_RISKi;
SUCCESS_INDICESi are the two indices reporting subject i’s perception of the role played by different factors in determining people’s success: SKILL_INDEXi and PERSONAL_INDEXi;
CHOICE_NO_VOIi is subject i’s preferred contract when the veil drops;
FIRSTi is a dummy variable equal to 1 if subject i belongs to the first category (rich);
LASTi is a dummy variable equal to 1 if subject i belongs to the third category (poor).
It was revealed that in both scenarios, belonging to a certain—hypothesized or real—category strongly matters. In other words, the rich (expected or actual) were more likely to choose the Individualistic State while poor people were more likely to select the Prioritarian one. More specifically, people who thought they would be in the rich category were 28% more likely to choose the actuarially fair contract and 22% less likely to vote for the progressive one. When the veil dropped, this effect was even stronger. In fact, rich people were 50% more likely to vote for the actuarially fair contract and 42% less likely to opt for the progressive one. At the same time, poor people were 23% more likely to vote for the progressive contract and 21% less likely to choose the actuarially fair option. Moreover, the actuarially fair contract was the least favored contract among the poor while the progressive contract was the last choice for most of the rich. Notice that this was perfectly in line with H1 and H2: The principle of self-interest maximization holds since category 1 and category 3 obtain the highest pay-offs under the actuarially fair contract and the progressive contract, respectively.
This result was strengthened if we analyzed in detail what made people switch to a different contract as soon as the veil dropped. We concentrated our attention on the change in choices when the veil was lifted and subjects became aware of their category and focused on the actuarially fair and progressive contracts. In fact, these two contracts each maximize the payoff for a different group, the rich and the poor, respectively.
Under the VOI condition, 66 subjects were in favor of the actuarially fair contract. Out of 66 subjects, only three—those participants who expected to belong to the third category—voted against their self-interest. What do those 66 subjects do when the veil is lifted? It turns out that 35 once again chose the actuarially fair contract (22 belonged to the rich and 10 to the middle class), while 24 subjects—16 poor and seven belonging to the middle class—decided to vote for the progressive contract.
In the VOI scenario, 41 subjects were in favor of the progressive contract. Only four out of 41—those who expected to belong to the first category—voted against their self-interest. When the veil was lifted, 24 again chose the progressive contract (11 were poor, and 12 belonged to the middle class), while 11 subjects decided to vote for the actuarially fair contract, nine of them being rich. More generally, out of 52 subjects who switched and belonged either to the rich or to the poor—the classes that take advantages from a specific contract—40 people (77%) chose another contract when the veil dropped in order to maximize their monetary payoff.
We ran a probit regression whose specification was (see
Table S10):
where:
SWITCHi is a dummy variable equal to 1 if subject i selects a different contract when the veil drops and 0 otherwise;
GUESSi is a dummy variable equal to 1 if subject i correctly predicts the category (s)he will belong to and 0 otherwise.
From 3, it became clear that the only reason to change one’s mind when the veil dropped was an incorrect prediction of one’s position in the society. In fact, 76% of people who incorrectly predicted their position and could obtain a monetary advantage changing their choice, actually switched. This was in line with H4.
To sum up, those subjects who preferred the Individualistic income distribution under the VOI condition either thought that they were high-ability subjects or that they belonged to the middle class (which was favored by no contract), while the Prioritarian contract was preferred by those who thought they were poor (or, again, belonged to the middle class). Without the veil of ignorance, the same scenario emerged, as subjects appeared to act out of self-interest: The rich prefer the Individualistic distribution, and the poor were in favor of the Prioritarian contract.
Result 2. Under the VOI condition, most of the expected middle class participants opted for the actuarially fair (Individualistic) contract, while under the NO_VOI condition, the preferred contract of the actual middle class was the progressive (Prioritarian) one.
Given the relevance of self-interest shown by the results analyzed thus far, we turned to a deeper study of the behavior of the middle class. According to the payoffs structure, no contract provided any monetary advantage to the middle class.
Let us start from the hypothetical middle class under the VOI—those 83 participants who believed that they would belong to the middle class once the veil dropped. The actuarially fair contract was the first preference (selected by 35 people), while the progressive contract came second (chosen by 29 subjects). Shifting to the NO_VOI condition, we saw that the progressive contract was the one favored by the actual middle class (chosen by 20 out of 49 subjects). One reason for these inconsistent choices was certainly the fact that the two groups of the expected middle class and the actual middle class did not match. In fact, only 30 subjects correctly predicted belonging to the middle class. Twenty-three of them were perfectly consistent in their choices over the two scenarios, and only eight of them preferred the actuarially fair contract. Moreover, among the 14 subjects who thought they would be rich and were in fact middle class when the veil was lifted, only three preferred the actuarially fair contract. Even if eight of them were in favor of the actuarially fair contract under VOI, only two confirmed their vote when the veil was lifted. The disappointment about their actual ability and earnings ranking might play a role in explaining this finding. Finally, among the five people who thought they would be poor and were in fact middle class when the veil was lifted, four were in favor of the progressive contract under VOI and three confirmed their choice when the veil was lifted.
Again, we ran an ordered probit regression in order to better understand middle class participants’ choices. The specification was (see
Table S12):
It is shown that people who thought they would be in the first category and those who opted for the progressive contract under the VOI were more likely to choose the Prioritarian Welfare State.
What happens to the 53 subjects whom, under the VOI condition, incorrectly predicted belonging to the middle class? Twenty-five were actually rich and 19 of them chose the actuarially fair contract (12 of them selected a different contract under VOI), while 28 were poor, 19 of whom chose the progressive contract (11 of them chose a different contract under VOI). This implied that as far as subjects realize they were in a class that was favored by a specific contract, they changed their mind and chose that contract.
How can we interpret this evidence? In our design, the middle class votes on the Welfare State were not intended to establish an impartial social choice, but simply to study how people without any economic interest choose. In this case, we might observe their latent preference for either meritocracy or solidarity in a context where the utility provided by the monetary payoff was not relevant (payoff was the same under any contract).
Under the VOI condition, most of the middle class subjects preferred either the Individualistic Welfare State or the Prioritarian one. The former were probably driven by the belief that people who are poor are responsible for their situation, and consequently, the rich should not be coerced to help them. The latter were probably more prone to thinking that society is plagued by the inequality of opportunity and that more lucky people should bear part of the risk associated with being poor.
How should we evaluate the finding that without the VOI, the subjects belonging to the middle class seemed to be more inclined to choose the Prioritarian contract? This group of middle income people was composed not only of subjects who took account of the fact of being less skilled (and thus less rich) than expected and switched to this contract when the VOI was dropped but also of subjects who confirmed their choice in favor of the redistributive Welfare State. This latter sub-group continued to prefer the Prioritarian contract.
All in all, the choice of the middle class was the result of two different dynamics: The coherence of people who correctly predicted their affiliation with the middle class and confirmed their choice, and the disappointment of people who thought they would fall in with the best performers and decided to become egalitarian as soon as they realize they were less well-off. Finally, the belief of belonging to the middle class had no effect on choices in the NO_VOI scenario. As soon as subjects realized that their actual class was favored by a particular contract, they opted for it. In other words, self-interest was definitely stronger than any other motivation and the expectation of being more talented than they actually were influenced their decision even when monetary earnings were not involved (see also
Tables S4–S9, S11 and S13 for a detailed overview of the results).