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Choosing Your Pond: Measuring Preferences for Relative Consumption

Listed author(s):
  • Nicolas L. Bottan
  • Ricardo Perez-Truglia

We provide a unique revealed-preference test of the hypothesis that, in addition to their absolute level of consumption, individuals care about their relative consumption. We study the decisions of senior medical students participating in the National Residency Match Program (NRMP). They must choose between programs that offer similar nominal incomes, but in cities with different costs of living and income distributions. As a result, they face trade-offs between absolute consumption and relative consumption. We conducted a survey experiment with 1,100 NRMP participants. We elicited their perceptions about cost of living and income distribution in the cities that they are considering living in, as well as their rank order submissions. To assess the direction of causality, we embedded an information-provision experiment that generates exogenous variation in perceptions. We find that, holding absolute consumption constant, the average individual prefers higher relative consumption. Moreover, we find substantial and meaningful heterogeneity in relative concerns by relationship status.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23615.

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Date of creation: Jul 2017
Handle: RePEc:nbr:nberwo:23615
Note: PE POL
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  1. Michael J. Boskin & Eytan Sheshinski, 1978. "Optimal Redistributive Taxation When Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 589-601.
  2. Marianne Bertrand & Emir Kamenica & Jessica Pan, 2015. "Gender Identity and Relative Income within Households," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 571-614.
  3. Richins, Marsha L & Dawson, Scott, 1992. " A Consumer Values Orientation for Materialism and Its Measurement: Scale Development and Validation," Journal of Consumer Research, Oxford University Press, vol. 19(3), pages 303-316, December.
  4. Yamada, Katsunori & Sato, Masayuki, 2013. "Another avenue for anatomy of income comparisons: Evidence from hypothetical choice experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 35-57.
  5. repec:aea:aecrev:v:107:y:2017:i:5:p:225-29 is not listed on IDEAS
  6. Leonardo Bursztyn & Thomas Fujiwara & Amanda Pallais, 2017. "'Acting Wife': Marriage Market Incentives and Labor Market Investments," NBER Working Papers 23043, National Bureau of Economic Research, Inc.
  7. Daniel J. Benjamin & Ori Heffetz & Miles S. Kimball & Alex Rees-Jones, 2014. "Can Marginal Rates of Substitution Be Inferred from Happiness Data? Evidence from Residency Choices," American Economic Review, American Economic Association, vol. 104(11), pages 3498-3528, November.
  8. Gautam Rao & Leonardo Bursztyn & Stefano Fiorin & Bruno Ferman & Martin Kanz, 2016. "Status Goods: Experimental Evidence from Platinum Credit Cards," Working Paper 396916, Harvard University OpenScholar.
  9. Daniel J. Benjamin & Ori Heffetz & Miles S. Kimball & Alex Rees-Jones, 2012. "What Do You Think Would Make You Happier? What Do You Think You Would Choose?," American Economic Review, American Economic Association, vol. 102(5), pages 2083-2110, August.
  10. Hitoshi Shigeoka & Katsunori Yamada, 2015. "Income-comparison Attitudes in the US and the UK: Evidence from Discrete-choice Experiments," ISER Discussion Paper 0930r, Institute of Social and Economic Research, Osaka University, revised Feb 2016.
  11. Clark, Andrew E. & Senik, Claudia & Yamada, Katsunori, 2015. "When Experienced and Decision Utility Concur: The Case of Income Comparisons," IZA Discussion Papers 9189, Institute for the Study of Labor (IZA).
  12. Elliott Peranson & Alvin E. Roth, 1999. "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," American Economic Review, American Economic Association, vol. 89(4), pages 748-780, September.
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