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What do happiness and health satisfaction data tell us about relative risk aversion?

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  • Gandelman, Néstor
  • Hernández-Murillo, Rubén

Abstract

In this paper we provide estimates of the coefficient of relative risk aversion using information on self-reports of subjective personal well-being from multiple datasets, including three cross-sectional surveys and two panel surveys, namely the Gallup World Poll, the European Social Survey, the World Values Survey, the British Household Panel Survey for the United Kingdom, and the General Social Survey for the United States. We additionally consider the implications of allowing for health-state dependence in the utility function on the estimates of risk aversion and examine how the marginal utility of income changes in poor health states. Our estimates of relative risk aversion with cross-section data vary closely around 1, which corresponds to logarithmic utility, while the estimates with panel data are slightly larger. We find that controlling for health dependence generally reduces these estimates. In contrast with other studies in the literature, our results also suggest that the marginal utility of income increases when satisfaction with health deteriorates, and this effect is robust across the various datasets analyzed.

Suggested Citation

  • Gandelman, Néstor & Hernández-Murillo, Rubén, 2013. "What do happiness and health satisfaction data tell us about relative risk aversion?," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 301-312.
  • Handle: RePEc:eee:joepsy:v:39:y:2013:i:c:p:301-312 DOI: 10.1016/j.joep.2013.09.005
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    Cited by:

    1. Konstantinos Angelopoulos & Stylianos Asimakopoulos & James Malley, "undated". "The optimal distribution of the tax burden over the business cycle," Discussion Papers 2014/17, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. repec:eee:ecofin:v:42:y:2017:i:c:p:156-171 is not listed on IDEAS
    3. Van de gaer, Dirk & Ramos, Xavier, 2015. "Measurement of Inequality of Opportunity Based on Counterfactuals," IZA Discussion Papers 9582, Institute for the Study of Labor (IZA).
    4. Gandelman, Nestor & Hernandez-Murillo, Ruben, 2015. "Risk Aversion at the Country Level," Review, Federal Reserve Bank of St. Louis, vol. 97(1), pages 53-66.
    5. repec:eee:joepsy:v:61:y:2017:i:c:p:191-202 is not listed on IDEAS
    6. Levy, Moshe, 2015. "An evolutionary explanation for risk aversion," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 51-61.

    More about this item

    Keywords

    Relative risk aversion; Marginal utility of income; Happiness; Health dependence;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G00 - Financial Economics - - General - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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