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Life Satisfaction, Household Income and Personality Theory

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  • Eugenio Proto
  • Aldo Rustichini

Abstract

We show that personality traits mediate the effect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own. To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 453.

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Length: 38 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp453

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Keywords: Life satisfaction; household income; personality theory; neuroticism;

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References

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  1. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
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  13. Deborah Cobb-Clark & Stefanie Schurer, 2011. "The Stability of Big-Five Personality Traits," Melbourne Institute Working Paper Series wp2011n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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Cited by:
  1. Santi Budria & Ada Ferrer-i-Carbonell, 2013. "Income Comparisons and Non-Cognitive Skills," Working Papers 733, Barcelona Graduate School of Economics.
  2. Maite Blázquez Cuesta & Santiago Budría, 2013. "Does income deprivation affect people’s mental well-being?," Banco de Espa�a Working Papers 1312, Banco de Espa�a.

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