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The Connexion between Old and New Approaches to Financial Satisfaction

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  • van Praag, Bernard M. S.

    ()
    (University of Amsterdam)

Abstract

In this paper we compare the new satisfaction evaluation approach, developed in the nineties by Oswald, Clark, Blanchflower and others with the older income evaluation (IEQ) approach, developed by Van Praag and Kapteyn in the seventies of the previous century. We find that both approaches yield strikingly similar results with respect to financial satisfaction. The IEQ- approach yields additional insights, but it is not well applicable to other life domains than finance. It is argued that the usual Probit specification implies a specific cardinalization and, consequently, is less ordinal than usually thought. It is shown that the Probit-approach may be replaced by three other equivalent specifications that have some computational and intuitive advantages.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1162.

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Length: 38 pages
Date of creation: May 2004
Date of revision:
Publication status: published in: Luigino Bruni and Pierluigi Porta (eds.), Economics and Happiness. Framing the Analysis, Oxford University Press, 2005
Handle: RePEc:iza:izadps:dp1162

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Keywords: cardinal utility; financial satisfaction; income evaluation; Probit-models;

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References

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  1. Bernard M.S. van Praag & P. Frijters & A. Ferrer-i-Carbonell, 2002. "The Anatomy of Subjective Well-being," Tinbergen Institute Discussion Papers 02-022/3, Tinbergen Institute.
  2. Praag, B.M.S. van & Kapteyn, A.J., 1973. "Further evidence on the individual welfare function of income: An empirical investigation in The Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-361895, Tilburg University.
  3. Seidl, Christian, 1994. "How sensible is the Leyden individual welfare function of income?," European Economic Review, Elsevier, vol. 38(8), pages 1633-1659, October.
  4. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  5. Goedhart, T. & Halberstadt, V. & Praag, B.M.S. van & Kapteyn, A.J., 1977. "The poverty line: Concept and measurement," Open Access publications from Tilburg University urn:nbn:nl:ui:12-361898, Tilburg University.
  6. Ada Ferrer-i-Carbonell & Bernard M.S. van Praag, 2002. "The Subjective Costs of Health Losses due to Chronic Diseases," Tinbergen Institute Discussion Papers 02-023/3, Tinbergen Institute.
  7. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  8. Ada Ferrer-i-Carbonell & Bernard Van Praag, 2001. "Poverty in Russia," Journal of Happiness Studies, Springer, vol. 2(2), pages 147-172, June.
  9. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  10. van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October.
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Cited by:
  1. Andrew E. Clark & Andreas Knabe & Steffen Rätzel, 2008. "Boon or Bane? Others' unemployment, well-being and job insecurity," PSE Working Papers halshs-00586022, HAL.
  2. Andrew Clark & Andreas Knabe & Steffen Rätzel, 2009. "Unemployment as a Social Norm in Germany," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 129(2), pages 251-260.
  3. Jens Bonke & Mette Deding & Mette Lausten, 2009. "Time and Money," Journal of Happiness Studies, Springer, vol. 10(2), pages 113-131, April.
  4. J. Bonke & M. Deding & M. Lausten, 2006. "Time and Money: Substitutes in Real Terms and Complements in Satisfactions," Economics Working Paper Archive wp_451, Levy Economics Institute.
  5. Cojocaru, Alexandru & Diagne, Mame Fatou, 2013. "How reliable and consistent are subjective measures of welfare in Europe and Central Asia ? evidence from the second life in transition survey," Policy Research Working Paper Series 6359, The World Bank.

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