Brown Bag Seminar: Alberto Prati

Hedonic Recall Bias. Why You Should Not Ask People How Much They Earn

Alberto Prati, AMSE

(Joint with Claudia Senik)

The empirical literature which explores the effect of income on job satisfaction typically uses data drawn from social surveys. In these surveys, the amount of income is reported by the respondents themselves: thus, the explanatory variable of the econometric models may differ from the true income people earn. Our paper shows that the use of survey data can lead to considerable over-estimation of the importance of wage as a determinant of wage satisfaction. In particular, responses seems to be affected by a recall bias: people who are satisfied with their wage are more likely to over-report their wage in questionnaires. The more satisfied they are, the larger the over-estimation is (and vice-versa for less satisfied people). We name this behavioral disposition "hedonic recall bias''.