Relative Deprivation, Personal Income Satisfaction and Average Well-being under Different Income Distributions: An Experimental Investigation

Abstract

In this chapter, we make an experimental investigation of the role of context dependence in the individual assessment of incomes. Suppose, for example, you had to assign 14 equally spaced incomes to seven categories ranging from ‘very bad’ to ‘excellent’. As the incomes are equally spaced, it is very likely that you would assign two neighbouring incomes in increasing order to the respective categories. However, this picture would change dramatically if the very same incomes (stimuli) were embedded in sets of additional background incomes, which serve to create different income distributions. The background context would cause you to rate the same income stimulus higher if there were only a few higher incomes in the respective income distribution. The same income stimulus would be rated lower if there were many incomes greater than the considered income in the respective income distribution. Thus, income categorization and, a fortiori, income satisfaction, depend on the background context.