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Life Satisfaction, Household Income and Personality Traits

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  • Proto, Eugenio
  • Rustichini, Aldo

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.

Suggested Citation

  • Proto, Eugenio & Rustichini, Aldo, 2012. "Life Satisfaction, Household Income and Personality Traits," Economic Research Papers 270640, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:270640
    DOI: 10.22004/ag.econ.270640
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    1. On happiness inequality
      by chris dillow in Stumbling and Mumbling on 2012-07-02 18:33:03

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    Keywords

    Financial Economics;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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