Relative Income and Happiness: An Experiment

78 Pages Posted: 17 Sep 2018

See all articles by John Ifcher

John Ifcher

Santa Clara University - Leavey School of Business - Economics Department

Homa Zarghamee

Santa Clara University - Leavey School of Business

Daniel Houser

Interdisciplinary Center for Economic Science

Lina Diaz

George Mason University

Abstract

John Stuart Mill claimed that "men do not desire merely to be rich, but richer than other men." Do people desire to be richer than others? Or is it that people desire favorable comparisons to others more generally, and being richer is merely a proxy for this ineffable relativity? We conduct an online experiment absent choice in which we measure subjective wellbeing (SWB) before and after an exogenous shock that reveals to subjects how many experimental points they and another subject receive, and whether or not points are worth money.We find that subjects like receiving monetized points significantly more than non-monetized points but dislike being "poorer" than others in monetized and non-monetized points equally, suggesting relative money is valued only for the relative points it represents. We find no evidence that subjects like being "richer" than others. Subgroup analyses reveal women have a strong(er) distaste for being "richer" and "poorer" (than do men), and conservatives have a strong(er) distaste for being "poorer" (than do progressives). Our experimental-SWB approach is easy to administer and can provide some insights a revealed-preference approach cannot, suggesting that it may complement choice-based tasks in future experiments to better estimate preference parameters.

Keywords: subjective well-being, relative income, others' income, income comparisons, happiness, experiments

JEL Classification: C91, D31, D63, I31

Suggested Citation

Ifcher, John and Zarghamee, Homa and Houser, Daniel and Diaz, Lina, Relative Income and Happiness: An Experiment. IZA Discussion Paper No. 11763, Available at SSRN: https://ssrn.com/abstract=3249877 or http://dx.doi.org/10.2139/ssrn.3249877

John Ifcher (Contact Author)

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Homa Zarghamee

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Daniel Houser

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
United States
7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

Lina Diaz

George Mason University

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