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The Role of Income Aspirations in Individual Happiness

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Alois Stutzer

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Abstract

Does individual well-being depend on the absolute level of income and consumption or is it relative to one's aspirations? In a direct empirical test, it is found that higher income aspirations reduce people's utility, ceteris paribus. Individual data on reported satisfaction with life are used as a proxy measure for utility, and income evaluation measures are applied as proxies for people's aspiration levels. Consistent with processes of adaptation and social comparison, income aspirations increase with people's income as well as with the average income in the community they live in.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp124.

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Handle: RePEc:zur:iewwpx:124

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Related research
Keywords: aspiration level; interdependent preferences; relative income; subjective well-being; utility;

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Find related papers by JEL classification:
D60 - Microeconomics - - Welfare Economics - - - General
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare

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