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Money and Happiness in India: Is Relative Comparison Cardinal or Ordinal and Same for All?

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  • T. Lakshmanasamy

    (University of Madras)

Abstract

The relative income hypothesis is often invoked to explain the absence of a systematic long-run relationship between income and happiness. It is not yet clear with what and with whom individuals compare their income, whether the social comparison is cardinal or ordinal, and whether the effect of such reference income is the same for all in their evaluation of life satisfaction. Studies often estimate the relative income effect on happiness using cardinal average reference income by ordered probit regression, in which the covariate effects are constant across happiness levels. To overcome these twin issues, this paper specifies two alternative ordinal relative income measures, rich or poor relative to average income and rank position within the reference group income distribution, and estimates their differential effects across happiness distribution by panel random effects generalised ordered probit method. The panel REGOPROB estimates of WVS data of India over a longer period of 24 years from 1990 to 2014 across states show that Indian people are more sensitive to social comparison than to individual income and the ordinal comparison is stronger than the cardinal comparison in the evaluation of life satisfaction. A rise in the rank position within the reference group is relatively more important for people with average levels of life satisfaction than for individuals at the extremes of life satisfaction distribution, either dissatisfied/unhappy or satisfied/happy Indians.

Suggested Citation

  • T. Lakshmanasamy, 2022. "Money and Happiness in India: Is Relative Comparison Cardinal or Ordinal and Same for All?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(4), pages 931-957, December.
    • Handle: RePEc:spr:jqecon:v:20:y:2022:i:4:d:10.1007_s40953-022-00326-7
    DOI: 10.1007/s40953-022-00326-7
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    More about this item

    Keywords

    Happiness; Life satisfaction; Social comparison; Cardinal vs ordinal comparison; Differential effects; Random effects generalised ordered probit regression;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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