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Life Satisfaction, Household Income and Personality Traits

Listed author(s):
  • Proto, Eugenio

    (University of Warwick)

  • Rustichini, Aldo

    (University of Minnesota)

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 signifficant 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 over- shoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/86.2012_proto.pdf
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Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 86.

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Date of creation: 2012
Handle: RePEc:cge:wacage:86
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  1. Joar Vittersø & Fredrik Nilsen, 2002. "The Conceptual and Relational Structure of Subjective Well-Being, Neuroticism, and Extraversion: Once Again, Neuroticism Is the Important Predictor of Happiness," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 57(1), pages 89-118, January.
  2. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
  3. Boyce, Christopher J. & Wood, Alex M., 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 183-191.
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  6. Cobb-Clark, Deborah A. & Schurer, Stefanie, 2012. "The stability of big-five personality traits," Economics Letters, Elsevier, vol. 115(1), pages 11-15.
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  10. 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.
  11. Daniel J. Benjamin & Ori Heffetz & Miles S. Kimball & Alex Rees-Jones, 2012. "What Do You Think Would Make You Happier? What Do You Think You Would Choose?," American Economic Review, American Economic Association, vol. 102(5), pages 2083-2110, August.
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  13. Lex Borghans & Angela Lee Duckworth & James J. Heckman & Bas ter Weel, 2008. "The Economics and Psychology of Personality Traits," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
  14. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  15. Boyce, Christopher J. & Wood, Alex M., 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 183-191, April.
  16. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  17. Rustichini, Aldo & DeYoung, Colin G. & Anderson, Jon E. & Burks, Stephen V., 2012. "Toward the Integration of Personality Theory and Decision Theory in the Explanation of Economic and Health Behavior," IZA Discussion Papers 6750, Institute for the Study of Labor (IZA).
  18. Almlund, Mathilde & Duckworth, Angela Lee & Heckman, James & Kautz, Tim, 2011. "Personality Psychology and Economics," Handbook of the Economics of Education, Elsevier.
  19. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
  20. 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.
  21. Richard Easterlin, 2005. "Feeding the Illusion of Growth and Happiness: A Reply to Hagerty and Veenhoven," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 74(3), pages 429-443, December.
  22. repec:pri:cheawb:deaton_income_health_and_wellbeing_around_the_world_evidence_%20from_gall is not listed on IDEAS
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