The aspirational income hypothesis: On the limits of the relative income hypothesis

•When the decision maker (DM) chooses a group of low income, the relative income hypothesis supposes only positive utility outcome.•The paper argues that the DM experiences also a countervailing negative utility, called the “aspirational income effect”.•The countervailing effect is the result of aspiration, the desire to be associated with a high income group.•The paper runs an experiment that confirms the aspirational income effect, which cannot be explained by expected income.•The experiment shows that the aspirational income effect is much stronger than the much-touted relative income effect.