Definition
Last-place aversion (LPA) is a behavioral preference in which individuals exhibit especially strong disutility from occupying — or falling into — the lowest rank in a distribution, beyond what standard risk aversion, prospect theory, or inequality-aversion models predict. Formally, utility includes a bonus term g(r)=1(r>1) for all but the last-place individual, creating a discontinuous jump at the boundary between last and second-to-last place. Under income uncertainty, this bonus extends to the second-to-last-place individual, who faces nontrivial probability of falling to last place. LPA was named and documented by Kuziemko, Buell, Reich, and Norton (2014, Quarterly Journal of Economics (QJE)).
Key Ideas
- Lottery experiment: In 6-player lab groups with randomly assigned wealth ranks, last-place players choose a risk-equivalent lottery (offering a chance to exit last place) 13.4 pp more often than players in any other rank. The effect is flat across ranks 1–5 and nonlinear at rank 6. It survives controls for prospect-theory reference points (below median, below previous round), expected rank change, and Fehr-Schmidt inequality measures.
- Dictator-game falsification of inequality aversion: In modified dictator games, subjects given $2 must give it to the person directly above or below them. Fehr-Schmidt inequality aversion predicts always transferring downward. Second-to-last-place subjects give upward 25–50% of the time — directly refuting the standard model for individuals near the bottom. No other rank exhibits this behavior.
- Minimum wage preferences: Survey evidence shows that workers earning just above the current minimum wage ($7.26–$8.25 when the minimum is $7.25) are significantly less likely (≈10–15 pp) to support a minimum wage increase. LPA explanation: a higher minimum would eliminate the last-place wage group from which they currently distinguish themselves.
- General Social Survey (GSS) redistribution: In nationally representative GSS data, individuals in the 6th–8th income deciles (above poverty but below median — the "second-to-last-place" analogue) support redistribution significantly less than predicted by income decile and background characteristics. The LPA-group shortfall (−0.096 on a 5-point scale) exceeds the effect of moving up one income decile (−0.087). The pattern holds for both whites and minorities, ruling out racial resentment as the primary explanation.
- Distinguishing from competing models: LPA is empirically separable from (a) standard diminishing absolute risk aversion, (b) prospect theory with mean/median reference points, (c) Fehr-Schmidt inequality aversion, (d) Bolton-Ockenfels equity, reciprocity, and competition (ERC), (e) Charness-Rabin distributional preferences, and (f) a linear rank effect. None of these models predict the discontinuous elevation at last place in the lottery experiment or the upward transfers in the dictator game.
- Uncertainty extension: When income uncertainty is introduced, even the second-to-last-place individual faces a meaningful probability of ending up last. This extends LPA-like behavior to a neighborhood around last place, which is the relevant case for real-world income distributions where no one is literally "in last place."
How It Works
A utility function u(y,r)=g(r)+(1−λ)f(⋅) separates absolute income effects from rank effects. LPA specifies g(r)=1(r>1) — a step function giving a bonus to all but the last-place individual — with weight λ on rank utility. For the last-place player, any lottery offering a chance to move up generates expected utility gain from the bonus term that does not exist for higher-ranked players, making the last-place player willing to accept actuarially fair risk that others reject. In the dictator game, the second-to-last-place player faces the same trade-off: giving money downward improves the recipient but risks the giver falling to last place and losing the bonus.
In real-world policy contexts, "last place" is operationalized through reference groups defined by the policy in question. For minimum wage, the last-place group is workers earning at or below the floor; for redistribution, it is the bottom quintile. Individuals just above these thresholds are the analogue of second-to-last-place.
Why It Matters
Political Economy of Redistribution
LPA provides a behavioral mechanism for why low-income individuals often oppose redistribution that would appear to benefit them economically. The standard explanations — prospects of upward mobility (POUM) hypothesis (Benabou and Ok 2001: voters rationally anticipate upward mobility), racial animus (whites opposing transfers to minorities), imperfect information — do not fully explain why the opposition is concentrated just above the bottom quintile rather than spread uniformly across the income distribution. LPA predicts this nonlinearity directly.
Minimum Wage Politics
The minimum wage finding has direct policy implications: raising the minimum wage may face opposition from the very workers it most benefits in absolute terms, if those workers are just above the new floor. This is a distinct mechanism from employer lobbying or small-business concerns, operating through relative-status preferences of low-wage workers themselves. See Minimum Wage and Wage Inequality.
Design of Redistributive Programs
If LPA is operative, redistributive programs that sharply define a "last-place" beneficiary group (e.g., programs targeted strictly at the poverty line) may generate stronger political opposition from near-poor individuals than programs with smoother benefit phase-outs, because sharp cutoffs make the last-place status more salient.
Broader Applications
- Consumer behavior: Consumers' tendency to purchase the second-cheapest option on a menu (e.g., wine) avoids association with the "last-place" product, consistent with LPA.
- Queue behavior: Reluctance to let others leapfrog in a queue is consistent with aversion to falling to last position in the waiting line.
- Education and neighborhoods: Moving to Opportunity (MTO) evidence suggesting boys who moved to better neighborhoods showed increased criminal activity (Kling, Ludwig, and Katz 2005) may reflect low academic rank in the new school encouraging effort substitution — an LPA-adjacent mechanism.
Open Questions
- How does LPA interact with multi-dimensional rankings? (Income, education, occupational prestige are all potential reference dimensions.)
- Is LPA stronger in more visible or public contexts (where "last place" is observable to others) vs. private settings? The lab design minimized visibility to isolate the intrinsic effect, but real-world salience may amplify it.
- Does LPA vary systematically by demographic group, culture, or country? The GSS evidence is U.S.-specific; cross-national comparisons could test whether LPA correlates with redistributive systems.
- What is the welfare implication? If LPA-driven opposition to redistribution is a preference, it must be weighed against efficiency and distributional considerations in social welfare analysis. If it is a bias (failure to recognize own interest), it may warrant information or framing interventions.
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