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Preferences, income, and life satisfaction: An equivalence result

Listed author(s):
  • Strulik, Holger

In this paper I investigate the nexus between life time utility (life satisfaction) and income predicted by the standard model of endogenous economic growth under different behavioral assumptions. The solution rationalizes why the empirical association between income and life satisfaction is approximately log-linear. I show that the solution is observationally equivalent when individuals compare their consumption (i) with others, (ii) with their own past consumption achievements, and (iii) not at all (ordinary preferences). This finding suggests that the observed slope of the income–life satisfaction curve is uninformative about the presence and strength of habits or reference-dependent utility.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165489615000153
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Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 75 (2015)
Issue (Month): C ()
Pages: 20-26

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Handle: RePEc:eee:matsoc:v:75:y:2015:i:c:p:20-26
DOI: 10.1016/j.mathsocsci.2015.02.003
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505565

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  1. Betsey Stevenson & Justin Wolfers, 2013. "Subjective Well-Being and Income: Is There Any Evidence of Satiation?," American Economic Review, American Economic Association, vol. 103(3), pages 598-604, May.
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  9. Betsey Stevenson & Justin Wolfers, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 1-102.
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  11. Cooper, Ben & Garcia-Penalosa, Cecilia & Funk, Peter, 2001. "Status Effects and Negative Utility Growth," Economic Journal, Royal Economic Society, vol. 111(473), pages 642-665, July.
  12. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
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  19. repec:pri:cheawb:deaton_income_health_and_wellbeing_around_the_world_evidence_%20from_gall is not listed on IDEAS
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