Abstract

I conducted a three-person ultimatum experiment in which the stake is divided into two pots of different sizes. The responders receive either the same amount of money or the same share in their pots, and have full information about the distribution of the stake. I find that subjects care about comparisons between the responders and these comparisons significantly affect their emotions. The responders who are treated more poorly than their counterparts report high intensity of anger and envy, and by punishing the proposer with rejections cause a significant loss of effectiveness in the distribution of income. On the other hand, the responders who are treated better than their counterparts report high intensity of guilt, which suggests strong inequality aversion.

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