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Paper

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

MPS-Authors
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Lang,  Harald
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Morath,  Florian
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

External Resource

http://ssrn.com/abstract=2703756
(Preprint)

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Citation

Lang, H., & Morath, F. (2015). A Glance into the Tunnel: Experimental Evidence on Income Comparisons Under Uncertainty. Working Paper of the Max Planck Institute for Tax Law and Public Finance, No. 2015-13.


Cite as: https://hdl.handle.net/11858/00-001M-0000-0029-7939-0
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 income-comparison effects if and only if the uncertainty over the own income is sufficiently strong.