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Preference for increasing wages: How do people value various streams of income?

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  • Duffy, Sean
  • Smith, John

Abstract

Prior studies have found that subjects prefer an improving sequence of income over a constant sequence, even if the constant sequence offers a larger present discounted value. However, little is known about how these preferences vary with the size of the wage payments. In each of our three studies, we find a relationship between the preference for increasing payments and the size of the payments. Further, our measure of the shape of the utility curve is not significantly related to this behavior. Our results roughly confirm an earlier theoretical prediction that the preference for increasing wage payments will be largest for payments which are neither very likely nor very unlikely to cover the cost of effort. Finally, consistent with the literature, we find mixed evidence regarding the applicability of these time preferences in domains other than money.

Suggested Citation

  • Duffy, Sean & Smith, John, 2010. "Preference for increasing wages: How do people value various streams of income?," MPRA Paper 23559, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23559
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    References listed on IDEAS

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    Cited by:

    1. Battisti, Michele, 2015. "Present-biased preferences and optimal compensation schedules: a note," MPRA Paper 64818, University Library of Munich, Germany.
    2. Duffy, Sean & Smith, John & Woods, Kristin, 2015. "How does the preference for increasing payments depend on the size and source of the payments?," MPRA Paper 64212, University Library of Munich, Germany.

    More about this item

    Keywords

    time preference; experimental economics; intertemporal choice;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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