Behavioral Economics: A New Look at Income Inequality and the Growing Wage Gap

9 Pages Posted: 7 Jan 2019

See all articles by Lan Chu Khanh

Lan Chu Khanh

State Bank of Vietnam - Banking Academy of Vietnam

Hung Chu

Washington and Lee University

Date Written: December 30, 2018

Abstract

Behavioral economics has been growing as a powerful tool to explain much of our life. Although people are often irrational in making their decisions, they are very predictable. In this paper, we offer an extension of the theory about how the human overvaluation of what they have (the high price of ownership) and the human fear of loss influence their decision-making process. Also, we argue for the U-curve relationship between the amount of money spent and the efforts (measured by time) that people spend before spending the money. Our theory offers new insights into why efficiency wages are prevalent, why income inequality is larger than expected, and why the growing wage gap is inherent in many countries.

Keywords: Behavioral economics, Income inequality, Efficiency wage

JEL Classification: D91.

Suggested Citation

Chu Khanh, Lan and Chu, Hung, Behavioral Economics: A New Look at Income Inequality and the Growing Wage Gap (December 30, 2018). Available at SSRN: https://ssrn.com/abstract=3308048 or http://dx.doi.org/10.2139/ssrn.3308048

Lan Chu Khanh

State Bank of Vietnam - Banking Academy of Vietnam ( email )

No.12, Chuaboc Street
Hanoi, Hanoi 10000
Vietnam
+84948788789 (Phone)

Hung Chu (Contact Author)

Washington and Lee University ( email )

204 W Washington St
Lexington, VA 24450
United States
540-319-0981 (Phone)

HOME PAGE: http://hungvietchu.com

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