A Glance into the Tunnel: Experimental Evidence on Income Comparisons Under Uncertainty
50 Pages Posted: 2 Feb 2016
Date Written: December 15, 2015
Learning that others earn more may reduce individual well-being but it can also be informative about the own income prospects. In an environment of uncertainty over the own income, this paper provides experimental evidence on direct income-comparison effects on well-being and informational effects from observing signals about others income prospects. We find that individual beliefs about the own income are adjusted downwards when observing that others are likely to earn less, but do not significantly adjust when observing that others are likely to earn more. Individual satisfaction decreases when others are likely to earn more but does not change significantly when others are likely to earn less. Overall, informational effects countervail direct income-comparison effects if and only if the uncertainty over the own income is sufficiently strong.
Keywords: tunnel effect, relative income, expectations, belief information, subjective well-being, experiment
JEL Classification: C91, D31, D63, D84
Suggested Citation: Suggested Citation