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Author: | Vendrik, M.C.M. Woltjer, G.B. |
Title: | Happiness and loss aversion: Is utility concave or convex in relative income? |
Journal: | Journal of Public Economics
2007 : AUG, VOL. 91:7-8, p. 1423-1448 |
Index terms: | Germany incomes sociology reference groups |
Freeterms: | loss aversion happiness life satisfaction |
Language: | eng |
Abstract: | A central finding in happiness research is that a person's life satisfaction (hereafter as: l-sat.) depends on the level of income relative to the average income in social reference group. This paper explores whether the characteristics of the value function like concavity for gains, convexity for losses, and loss aversion apply to the dependence of l-sat. on relative income. This is tested with an improved measure for the reference income for a large German panel from 1984 to 2001. There is found concavity of life satisfaction in positive relative income, but unexpectedly strongly significant concavity of l-sat. in negative relative income, as well. A new method for showing the robustness of the concavity results is also presented. |
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