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Are optimistic expectations keeping the Chinese happy?

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Author Info

  • Paul Frijters

    () (QUT)

  • Amy Y.C. Liu

    () (ANU)

  • Xin Meng

    () (ANU)

Abstract

In this paper we study the effect of optimistic income expectations on life satisfaction amongst the Chinese population. Using a large scale household survey conducted in 2002 we find that the level of optimism about the future is particularly strong in the countryside and amongst rural-to-urban migrants. The importance of these expectations for life satisfaction is particularly pronounced in the urban areas, though also highly significant for the rural area. If expectations were to reverse from positive to negative, we calculate that this would have doubled the proportion of unhappy people and reduced proportion of very happy people by 48%. We perform several robustness checks to see if the results are driven by variations in precautionary savings or reverse causality.

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Bibliographic Info

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 37.

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Length: 45
Date of creation: 24 Nov 2008
Date of revision:
Handle: RePEc:qut:auncer:2008-26

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Keywords: Expectations; Happiness; Consumption and Savings; China; Political Economy;

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References

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  1. Das, Marcel & van Soest, Arthur, 1999. "A panel data model for subjective information on household income growth," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 409-426, December.
  2. Brunnermeier, Markus K & Parker, Jonathan A, 2004. "Optimal Expectation," CEPR Discussion Papers 4656, C.E.P.R. Discussion Papers.
  3. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
  4. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2003. "Disagreement about Inflation Expectations," Harvard Institute of Economic Research Working Papers 2011, Harvard - Institute of Economic Research.
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  7. Claudia Senik, 2002. "When Information Dominates Comparison. A Panel Data Analysis Using Russian Subjective Data," DELTA Working Papers 2002-02, DELTA (Ecole normale supérieure).
  8. Senik, Claudia, 2008. "Is man doomed to progress?," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 140-152, October.
  9. Song, Lina & Appleton, Simon, 2008. "Life Satisfaction in Urban China: Components and Determinants," MPRA Paper 8347, University Library of Munich, Germany.
  10. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  11. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  12. Daniel S. Hamermesh, 2004. "Subjective Outcomes in Economics," Southern Economic Journal, Southern Economic Association, vol. 71(1), pages 2-11, July.
  13. John Knight & Ramani Gunatilaka, 2008. "Aspirations, Adaptation and Subjective Well-Being of Rural-Urban Migrants in China," Economics Series Working Papers 381, University of Oxford, Department of Economics.
  14. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
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Cited by:
  1. John Knight, 2012. "The Economic Causes and Consequences of Social Instability in China," Economics Series Working Papers 619, University of Oxford, Department of Economics.

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