How Exposure to Markets Can Favor Inequity-Averse Preferences

Abstract

This paper shows how non-individualistic preferences can be individual fitness maximizing in market-integrated societies. In the model, individuals share an endowment, which is used for consumption and/or purchase of goods on the external market. We show that inequity aversion about endowment distribution can be an optimal response to merchants' price discrimination. Then, assuming that increased consumption means increased individual fitness, we argue that evolutionary selection can favor inequity-averse preferences. We also argue that our model can explain an empirical finding of Henrich et al. (2004) about the positive effect of a society's exposure to markets on its members' sociality.

Keywords: Inequity aversion, endogenous preferences, preference evolution, market exposure, cross-societal differences

JEL Classification: A10, C73, D63