Income increases do not compensate for perceived inflation—A price-consumption anomaly

Tommy Gärling, Amelie Gamble and Fabian Christandl

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2013, vol. 47, issue C, 11-15

Abstract: We conjecture that lay people extrapolate past inflation, evaluate product prices relative to recalled reference prices, and perceive income increases as opportunities to increase consumption. From these conjectures we derive the hypothesis that past inflation makes products or expenditures appear more expensive, whereas income increases make them more affordable but not less expensive. In Experiment 1 205 undergraduates were in different conditions asked to imagine that they received no income increase, a 10% income increase, or that past inflation was 5%, 10% or 30%. In line with the hypothesis, expensiveness of common products and expenditures was rated higher for the higher inflation rates but not lower for the income increase. In Experiment 2 114 undergraduates imagined that they would receive a 10% income decrease or increase and that past inflation was 5% or 15%. Also in line with the hypothesis, ratings of expensiveness of the products and expenditures increased with increased inflation but did not vary with income, whereas ratings of affordability of the products and expenditures increased more with an income increase than a decrease but did not vary with inflation.

Keywords: Perceived inflation; Income change; Product price; Expenditure cost (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1053535713001212
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:47:y:2013:i:c:p:11-15

DOI: 10.1016/j.socec.2013.08.006

Access Statistics for this article

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza

More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier
Bibliographic data for series maintained by Catherine Liu ().