Meaning
Social metrics quantify the level of perceived unfairness a participant will endure before choosing to destroy mutual value. An inequity aversion threshold explains why a founder might reject a profitable buyout if they believe a partner is receiving an unfair share. It marks the boundary where the desire for fairness overcomes the logic of financial gain.
Fairness Ceiling
Research into ultimatum games shows that humans often prefer zero return over an insulting fraction of a large pool. The inequity aversion threshold varies between individuals based on their prior contribution to the venture. When this threshold is crossed, the individual often becomes irrational and hostile to the transaction.
Utility Disparity
Disparities in stock options or salaries often create a sense of injustice that builds over months. The inequity aversion threshold is the point where this sentiment turns into active resistance against the company. It can be measured by the willingness of a person to quit a lucrative role out of spite.
This cost is borne by the firm in lost knowledge and momentum.
Cooperation Limit
Reaching this limit usually signals the end of a productive partnership. The inequity aversion threshold is a permanent barrier to future collaboration between the parties.
