The Effect of Income on the Importance of Money: Survey and Experimental Evidence

Abstract

The authors investigate how both the amount and source of income affects the importance placed on money using a longitudinal analysis of the British Household Panel Survey and evidence from two laboratory experiments. Larger amounts of money received for labor were associated with individuals placing greater importance on money, but this effect did not hold for money unrelated to work. The longitudinal survey analysis demonstrated these differential effects of the source of income on money’s importance while holding constant stable individual differences. The experiments provide evidence that the source of income has a causal effect on the importance of money as well as on the effort expended to earn more money. Even as individual differences in the importance placed on money may affect peoples’ income, our results suggests that, depending upon its source, income can also affect the importance people place on money.

Keywords: judgement, decision making, money, income, experiments