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Fear of the Dark: Inflation Experiences and Subjective Well-being

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  • Cupák, Andrej
  • Širaňová, Mária

Abstract

In this paper, we estimate the impact of past inflation experiences (à la Malmendier and Wachter, 2023) on people's current level of utility as revealed by their subjective well-being. Combining detailed EU-level Household Finance and Consumption Survey microdata and lifetime experienced inflation, we provide novel evidence that individual households who have experienced higher historical inflation report significantly lower current life satisfaction scores, even after controlling for a large set of socio-economic characteristics and household wealth and income levels. However, for the old EU countries sample, individual households appear to derive higher subjective well-being from modest inflation up to around 2.6%.

Suggested Citation

  • Cupák, Andrej & Širaňová, Mária, 2023. "Fear of the Dark: Inflation Experiences and Subjective Well-being," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004603
    DOI: 10.1016/j.econlet.2023.111434
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    References listed on IDEAS

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    1. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
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    3. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 13-70, National Bureau of Economic Research, Inc.
    4. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
    5. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, vol. 118(529), pages 222-243, June.
    6. David G. Blanchflower & David N.F. Bell & Alberto Montagnoli & Mirko Moro, 2014. "The Happiness Trade‐Off between Unemployment and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 117-141, October.
    7. Ulrike Malmendier, 2021. "FBBVA Lecture 2020: Exposure, Experience, and Expertise: Why Personal Histories Matter in Economics [Macroeconomic Experiences and Risk Taking of Euro Area Households]," Journal of the European Economic Association, European Economic Association, vol. 19(6), pages 2857-2894.
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    More about this item

    Keywords

    Behavioral finance; Household finance; Experience effects; Inflation; Subjective well-being; Life satisfaction;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G50 - Financial Economics - - Household Finance - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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