Which Ponds Do We Choose, and Why? The Choice of Income Reference Group and Its Consequences

Although higher status or income rank is known to generate hedonic pleasure, little is known about the search for rank information. We report an experiment eliciting rank beliefs and providing rank information to a large sample of mid-career Finns, with both exogenous and endogenous choice of reference populations. Nearly half care most about rank within occupation, and few about national rank. This choice pattern itself, the reported motivations, interactions between choice and its motivation, and the longer-run effects of rank information on real behavior are all consistent with instrumentally motivated search, and inconsistent with purely hedonic motives for search. Yet, the short-run well-being effects of rank information are consistent with hedonic motivation. We provide a resolution of this apparent puzzle.