Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: The growing inequalities around the world are becoming increasingly alarming making redistribution more relevant than ever. One reason why people may oppose redistribution is third party loss aversion. In a pre-registered online experiment with a within-subjects design, I show that redistribution decisions by third parties are affected by loss aversion. Overall, spectators are 7%-points less likely to redistribute from a status quo to an alternative if the alternative entails a loss for one person, even if inequality aversion, maximin preferences and efficiency concerns favor the alternative. This effect is stronger the higher the loss is compared to the gain and the higher the individual loss aversion of the spectator. The key contribution of the paper is to disentangle third party loss aversion from pure status quo bias, rank reversal aversion and other distributional preferences in multiple loss scenarios and to link it to individual loss aversion.

Keywords: Third party loss aversion, loss aversion, redistribution, spectators, fairness

JEL-codes: D91; D63 August 2025

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