It does (not) get better: Reference income violation and altruism

We experimentally test whether the gap between reference and actual income impacts subsequent altruism. Participants first perform a real-effort task for a fixed wage and then play a dictator game. Between conditions, we vary the level and the timing of the revelation of the wage. In some conditions, participants know the wage before the real effort task and are not informed of the other potential levels. In some other conditions, they are informed of the distribution of wages before the real effort task, but the actual wage is only revealed afterward. Participants in the latter conditions can form references that may be higher or lower than their actual wage. Our hypothesis is that the gap between the reference and the actual wage impacts transfers in the subsequent dictator game, either because participants want to compensate their recent losses, or because of the emotional reaction to gains and losses. The results support this hypothesis: participants who get the low wage transfer less and are less likely to transfer when they are informed of the other potential levels than when they are not. Conversely, participants who get the high wage are more likely to transfer positive amounts when they are informed of the other potential levels. We use physiological (skin conductance response) and declarative data to discuss the role of emotions in our treatment effects.