An Experimental Investigation of the Impact of Absolute and Relative Inequalities on Individual Satisfaction

Whereas recent evidences suggest absolute inequalities (i.e. inequalities between agents’ income measured in absolute terms) and relative inequalities (i.e. inequalities captured by the ratio between agents’ income) to have different cognitive implications, econometric models consider both measures as interchangeable when referring to individual satisfaction. Do income inequalities measured both on relative and absolute terms lead to the same effect on individual satisfaction? We implement an experimental protocol so as to investigate the impact of income inequalities on individual satisfaction. By implementing different treatments, we disentangle the impact of absolute income inequalities from the impact of relative income inequalities on individual satisfaction. We observe that individual satisfaction is significantly and negatively correlated to absolute income inequalities. Relative inequalities seem to have no effect on individual satisfaction.