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

Abstract

AbstractPrior 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 four studies, we find a positive relationship between the preference for increasing payments and the size of the payments. We find no evidence that our measure of the decreasing marginal utility of money is associated with this relationship. Additionally, we find weak evidence in support of a theoretical prediction that the difference between the preference for increasing wage payments and the preference for increasing nonwage payments will be largest for intermediate amounts. We do not find a relationship between the preference for increasing payments and the preference for improving nonmonetary sequences. Finally, the relationship between the preference for increasing payments and the size of the payments does not appear to be sensitive to the precise specification of the increases.