Relative Payoffs and Happiness: An Experimental Study

Abstract:     
Are people concerned with their relative standing in a reference group? Do certain types care more about this than others? Little work has been done to identify underlying determinants for an inclination to make social comparisons and to explain variation across individuals. We investigate whether a person's level of happiness influences her taste for social comparisons and offer subjects choices in decision tasks where there is little or no difference in their monetary reward across choices, but where the material payoff for another person is strongly impacted. These decision tasks are calibrated to distinguish between a person's pure taste for achieving the social optimum, equality or preferences for advantageous relative standing. Self-reported happiness, as measured by scales derived from subjects' responses to questionnaires, is correlated with individual choices. Somewhat surprisingly, we find that most people appear to disregard relative payoffs, instead typically making choices resulting in higher social payoffs. While we do not find a strong correlation between happiness and difference aversion, we do observe that a willingness to lower another person's payoff below one's own (competitive preferences) seems correlated with unhappiness.

JEL Classifications: C72, C91

Working Paper Series