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Relative Income and Income Satisfaction: An Experimental Study

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  • Kai Liu

    (Renmin University of China)

  • Xianghong Wang

    (Renmin University of China)

Abstract

This paper examines the impact of relative income on income satisfaction with given absolute income. We conducted an experiment in China where participants earned three different levels of income according to their relative performance in a task. While the treatment group was informed about their relative income, the control group only knew their own absolute income. We found that while controlling for absolute income and other factors, information about relative income increases the satisfaction of the high-income group and reduces the satisfaction of the low-income group. Relative income may interact with individual characteristics, such as gender, to affect income satisfaction. We also found that relative income treatment significantly increases income satisfaction inequality, primarily by causing social comparisons among different income groups, which has some welfare implications.

Suggested Citation

  • Kai Liu & Xianghong Wang, 2017. "Relative Income and Income Satisfaction: An Experimental Study," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(1), pages 395-409, May.
    • Handle: RePEc:spr:soinre:v:132:y:2017:i:1:d:10.1007_s11205-016-1266-9
    DOI: 10.1007/s11205-016-1266-9
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    More about this item

    Keywords

    Relative income; Income satisfaction; Inequality; Subjective wellbeing; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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