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?

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 relationship between the preference for increasing payments and the size of the payments. Further, our measure of the shape of the utility curve is not significantly related to this behavior. Our results roughly confirm an earlier theoretical prediction that the preference for increasing wage payments will be largest for payments which are neither very likely nor very unlikely to cover the cost of effort. Finally, consistent with the literature, we find mixed evidence regarding the applicability of these time preferences in domains other than money.

• Item Type: MPRA Paper
• Language: English
• Keywords: time preference; experimental economics; intertemporal choice
• Subjects: D - Microeconomics > D9 - Intertemporal Choice > D90 - General; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

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