Research: Learning about one’s income position brings positive surprises, boosts satisfaction and influences financial decisions

Thanks to an innovative research method, the study was able to reliably assess the causal effect of income awareness on perceived satisfaction. It also explored how information provided through a survey influences people’s actual financial choices – a second groundbreaking element in the research.

The study, carried out jointly by Hanken School of Economics, the Taxation Research Unit at Tampere University, and Statistics Finland, examined how knowledge of one’s income position affects perceived satisfaction. A total of 21,000 randomly selected Finnish respondents were invited to take part in the survey.

Participants were first asked to estimate their income position compared to other Finns or to a more specific reference group (e.g. individuals with similar education or occupation). The results showed that most respondents underestimated their position. A portion of participants were then informed of their actual income position – which came as a positive surprise to the majority and increased their satisfaction with their own income.

Income comparisons are often thought to trigger negative emotions. However, the study found that the overall impact depends on how individuals perceive their position to begin with. When the information leads to positive surprises, greater transparency around income can actually enhance overall satisfaction.

Those who received the information were randomly selected and compared to a control group who did not receive any income data. Thanks to the random assignment and large sample size, the study provides strong evidence of a direct causal effect of relative income information on satisfaction.

Respondents were also compensated, with the amount depending on how accurately they estimated their income position. They had the option to donate part of their compensation to charity. This was the first time Statistics Finland conducted an experimental survey of this kind in collaboration with researchers, where compensation was linked to participants’ choices in the survey.

“This makes the study methodologically innovative and opens up similar opportunities for other researchers,” says Professor Kaisa Kotakorpi, director of the Taxation Research Unit at Tampere University.

“The aim of the compensation was to encourage respondents to reflect carefully and strive for accurate answers, which improves the reliability of the data,” adds Topi Miettinen, project lead and professor of economics at Hanken.

Learning about one’s actual income position not only affected satisfaction – it also influenced behaviour. Respondents who discovered they were better off than expected donated more to charity compared to similar individuals who did not receive income information. Moreover, the income data had an impact on future earnings: those who had earned less than expected within their occupational group saw their income increase, while those who had earned more than expected experienced a decrease – compared to the control group.

“The fact that information affects real-life decisions – not just survey responses – is also a pioneering aspect of this research,” Kotakorpi notes.

The research article has been accepted for publication in American Economic Journal: Applied Economics.