Social Comparisons; the behavioural component

The relative income hypothesis states that what matters for subjective well-being is not only one’s absolute level of income, but comparisons with others’ income as well. However, the related literature has disregarded the behavioural component. We propose a theoretical model of the relative income hypothesis which incorporates a behavioural effect that interacts with the standard comparisons effect. Using the Spanish Survey of Household Finances (SHF) for the period 2002-2017, we test the theoretical implications and find that the behavioural effect may explain why upward and downward comparisons are not effective when we compare with other individuals whose income is close enough. This effect holds in terms of income, but not in terms of wealth when both are dimensions of comparisons. Wealth deprivation is significant and negative for any interval of comparison. We add two additional empirical tests; dynamic comparisons and components of wealth. Comparisons with those who surpass my level of resources or from those who I surpass have no effect. The components of wealth which affect subjective well-being are real assets and, to a lesser extent, financial assets. There is no effect from non-real estate or real estate debt.