Choosing Your Pond: Location Choices and Relative Income
165 Pages Posted: 25 Jul 2017 Last revised: 16 Nov 2020
Date Written: December 1, 2017
Do individuals care about their relative income? While this is a long-standing hypothesis, revealed-preference evidence remains elusive. We provide a unique test by studying residential choices: individuals often must choose between places with different income distributions, and as a result they “choose” their relative income. We conducted a field experiment with 1,080 senior medical students who participated in the National Resident Matching Program. We estimate their preferences by combining choice data, survey data on perceptions and information-provision experiments. The evidence suggests that individuals care about their relative income and that these preferences differ across single and non-single individuals.
Keywords: location choices, relative income, learning, field experiment
JEL Classification: D03, D60, D31, D80, I31, K34, Z10
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