A tale of two cities: an experiment on inequality and preferences

Abstract

AbstractThe existence of a strong link between socio-economic background and individual preferences has been documented among both children and grown-ups. Here, we study whether such a correlation persists even in a highly homogeneous population of young adults: university students. Our findings indicate that participants living in an area characterized by a high socio-economic environment tend to trust more and are more inclined to reciprocate higher levels of trust, as compared to those coming from less wealthy neighborhoods. This behavioral difference is, at least in part, driven by heterogeneities in beliefs: subjects from the most affluent part of the city have more optimistic expectations on their counterpart’s trustworthiness than those living in a lower socio-economic environment. By contrast, no significant differences emerge in other preferences: generosity, risk attitudes, and time preferences. Finally, we do not find any systematic evidence of out-group discrimination based on neighborhood identity.