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Life Satisfaction, Household Income and Personality Theory

  • Eugenio Proto
  • Aldo Rustichini

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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.403014.de/diw_sp0453.pdf
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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 453.

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Length: 38 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp453
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  1. Stevenson, Betsey & Wolfers, Justin, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," CEPR Discussion Papers 6944, C.E.P.R. Discussion Papers.
  2. repec:pri:cheawb:deaton_income_health_and_wellbeing_around_the_world_evidence_%20from_gallup_world_poll_jep_spring2008 is not listed on IDEAS
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  12. Mathilde Almlund & Angela Lee Duckworth & James J. Heckman & Tim D. Kautz, 2011. "Personality Psychology and Economics," NBER Working Papers 16822, National Bureau of Economic Research, Inc.
  13. 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, Springer, vol. 57(1), pages 89-118, January.
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