A Glance into the Tunnel: Experimental Evidence on Income Comparisons under Uncertainty

Harald Lang and Florian Morath

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: Learning that others earn more may reduce individual well-being but it can also be informative about the own income prospects. In an environment of uncertainty over the own income, this paper provides experimental evidence on direct income-comparison effects on well-being and informational effects from observing signals about others' income prospects. We find that individual beliefs about the own income are adjusted downwards when observing that others are likely to earn less, but do not significantly adjust when observing that others are likely to earn more. Individual satisfaction decreases when others are likely to earn more but does not change significantly when others are likely to earn less. Overall, informational effects countervail direct incomecomparison effects if and only if the uncertainty over the own income is sufficiently strong.

Keywords: Tunnel effect; relative income; expectations; belief formation; subjectivewell-being; experiment (search for similar items in EconPapers)
JEL-codes: C91 D31 D63 D84 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-11
New Economics Papers: this item is included in nep-exp and nep-hap
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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