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Life Satisfaction, Household Income and Personality Theory

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  • Eugenio Proto
  • Aldo Rustichini

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

  • Eugenio Proto & Aldo Rustichini, 2012. "Life Satisfaction, Household Income and Personality Theory," SOEPpapers on Multidisciplinary Panel Data Research 453, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp453
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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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    References listed on IDEAS

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    Cited by:

    1. Budría, Santiago & Ferrer-i-Carbonell, Ada, 2012. "Income Comparisons and Non-Cognitive Skills," IZA Discussion Papers 6419, Institute for the Study of Labor (IZA).
    2. Maite Blázquez Cuesta & Santiago Budría, 2013. "Does income deprivation affect people’s mental well-being?," Working Papers 1312, Banco de España;Working Papers Homepage.

    More about this item

    Keywords

    Life satisfaction; household income; personality theory; neuroticism;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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