The Aspirational Income Hypothesis: On the Limits of the Relative Income Hypothesis

46 Pages Posted: 27 Feb 2021

See all articles by Elias Khalil

Elias Khalil

Doha Institute for Graduate Studies - School of Public Administration and Development Economics

Jason Anthony Aimone

Baylor University - Department of Economics

Daniel Houser

Interdisciplinary Center for Economic Science

Siyu Wang

Wichita State University - W. Frank Barton School of Business - Department of Economics

Deborah Martinez Villarreal

Inter-American Development Bank (IDB)

Kun Qian

George Mason University

Date Written: September 30, 2020

Abstract

According to the “relative income hypothesis,” decision makers derive positive utility from identifying with a group that performs more poorly than they do. We hypothesize that decision makers simultaneously derive negative utility from identifying with such a group. The reason is that decision makers aspire toward status, and thus prefer to identify with a group that is more successful than they are. We call such proposed reason the “aspirational income hypothesis.” If the aspirational income effect dominates the relative income effect, decision makers would prefer to join groups with higher rank than their own. We report data from an experiment that supports the aspirational income hypothesis. It shows that the hypothesis holds (at a weaker intensity) even when it is costly to join a higher ranking group.

Keywords: Peer Group, Desire, Status, Happiness, Pecuniary (hedonic) Incentive, Ability, Experiment

JEL Classification: D60, D63

Suggested Citation

Khalil, Elias and Aimone, Jason Anthony and Houser, Daniel and Wang, Siyu and Martinez Villarreal, Deborah and Qian, Kun, The Aspirational Income Hypothesis: On the Limits of the Relative Income Hypothesis (September 30, 2020). Available at SSRN: https://ssrn.com/abstract=3756369 or http://dx.doi.org/10.2139/ssrn.3756369

Elias Khalil (Contact Author)

Doha Institute for Graduate Studies - School of Public Administration and Development Economics ( email )

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Jason Anthony Aimone

Baylor University - Department of Economics ( email )

P.O. Box 98003
Waco, TX 76798-8003
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/

Siyu Wang

Wichita State University - W. Frank Barton School of Business - Department of Economics ( email )

Wichita, KS 67260-0078
United States

Deborah Martinez Villarreal

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Kun Qian

George Mason University ( email )

Fairfax, VA
United States

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