Abstract
It is well-known that subjects can exhibit a preference for increasing payments. Smith (2009a) makes a related prediction that the difference between the preference increasing wage payments and the preference for increasing non-wage payments will be largest for intermediate payments. We find evidence consistent with this prediction. Consistent with previous experiments, we find that the preference for increasing payments is increasing in the size of the payments. Also consistent with the literature, we find that the preference for increasing wage payments is stronger than the preference for non-wage payments.
Highlights
It is well-known that subjects often exhibit a preference for sequences of outcomes with an improving trend over sequences that are constant or declining (Loewenstein and Prelec, 1993)
As an explanation of the di¤erence in the preference for increasing wage payments and nonwage payments, Smith (2009a) o¤ered a model of a decision maker with imperfect memory who makes a prospective choice among payment sequences
In order to test the prediction of Smith (2009a), Du¤y and Smith (2013) o¤ered subjects a series of questions where each response item speci...ed an explicit sequence of payments over time
Summary
It is well-known that subjects often exhibit a preference for sequences of outcomes with an improving trend over sequences that are constant or declining (Loewenstein and Prelec, 1993). Many subjects prefer increasing sequences of payments over constant sequences, even if the increasing sequences have a lower present value (Loewenstein and Sicherman, 1991). Loewenstein and Sicherman (1991) found that the that the preference for increasing payments is stronger when the money is described as wages rather than from another source. In order to test the prediction of Smith (2009a), Du¤y and Smith (2013) o¤ered subjects a series of questions where each response item speci...ed an explicit sequence of payments over time. There was an option for a constant payment sequence. The rate of the increase of the sequence is negatively related to the present value of that sequence
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