Is relative income of overriding importance for individuals?
Kenneth V. Greene
Phillip J. Nelson
Purpose – The purpose of this paper is to reexamine the idea currently rampant in the mainstream economics literature that it is relative rather than real income that is of most importance for individual well-being and that both evidence on expressed happiness and individual “choices” in surveys provide strong evidence for that position. Design/methodology/approach – A reconsideration of the theory, extensive new survey results, and presentation of material relevant for individuals' actual choices. Findings – The idea that other's higher incomes leaves others worse off really is not convincing, the evidence from surveys that people really have preferences for living in societies where their relative income is high at the expense of real income is wrong and that people's actual choices reveal them to be interested in real rather than relative income. Practical implications – Those social commentators who deride the negative externalities generated by individual pursuit of higher incomes and who advocate considerably more progressive taxes have still not provided good evidence to make their case. Originality/value – The originality lies in providing an analysis of extensive surveys of positional preferences that allows for the demonstration that responses depend on survey structure and respondent knowledge levels and in shedding new light and doubts on previous attempts to use surveys to attempt to bolster the case that relative income is of overriding importance for individual welfare.
Individual behaviour, Personal finance, Personal needs, Wealth and income
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