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

Duffy, Sean and Smith, John (2010): Preference for increasing wages: How do people value various streams of income?

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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 positive relationship between the preference for increasing payments and the size of the payments. Further, our measure of the decreasing marginal utility of money is only weakly associated with this relationship. Additionally, our results roughly confirm an earlier theoretical prediction that the preference for increasing wage payments will be largest for intermediate sized payments. Finally, consistent with the literature, we find mixed evidence regarding the relationship between the preference for increasing payments and such preferences in other domains.

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