Day 51: One thing I learned today…
If you are not ahead are you falling behind?
A survey was collected about income. Would you prefer to earn $50,000 or $100,000… this seems like a pretty easy question right? Now let’s add in reference points.
Which would you prefer?
A: Your current yearly income is $50,000; others earn $25,000. B: Your current yearly income is $100,000; others earn $200,000.
(Prices are what they are currently and prices are the same in scenario A and B.)
The following paper reports that reference points can interfere with our decisions. In a hypothetical earnings situation people would prefer to make less money if their coworkers make less rather than make more money if their coworkers make more.
Source: Solnick and Hemenway (1997). Is more always better?: A survey on positional concerns. Journal of Economic Behavior and Organization, 37, 373-383.
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