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What do happiness and health satisfaction data tell us about relative risk aversion?

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  • Néstor Gándelman
  • Rubén Hernández-Murillo

Abstract

In this paper we provide estimates of the coefficient of relative risk aversion using information on self-reports of subjective personal well-being from the 2006 Gallup World Poll. We expand the existing literature on the use of happiness data to analyze economic issues by considering the implications of allowing for health state dependence in the utility function. Our estimates of relative risk aversion using pooled data from various country groupings are smaller than one, suggesting less concavity than log utility. We also find that controlling for health dependence generally reduces these estimates. Our results also suggest that the marginal utility of income increases when health deteriorates.

Suggested Citation

  • Néstor Gándelman & Rubén Hernández-Murillo, 2011. "What do happiness and health satisfaction data tell us about relative risk aversion?," Working Papers 2011-039, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2011-039
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    References listed on IDEAS

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    Cited by:

    1. Konstantinos Angelopoulos & Stylianos Asimakopoulos & James Malley, "undated". "The optimal distribution of the tax burden over the business cycle," Discussion Papers 2014/17, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. repec:eee:ecofin:v:42:y:2017:i:c:p:156-171 is not listed on IDEAS
    3. Van de gaer, Dirk & Ramos, Xavier, 2015. "Measurement of Inequality of Opportunity Based on Counterfactuals," IZA Discussion Papers 9582, Institute for the Study of Labor (IZA).
    4. Gandelman, Nestor & Hernandez-Murillo, Ruben, 2015. "Risk Aversion at the Country Level," Review, Federal Reserve Bank of St. Louis, vol. 97(1), pages 53-66.
    5. repec:eee:joepsy:v:61:y:2017:i:c:p:191-202 is not listed on IDEAS
    6. Levy, Moshe, 2015. "An evolutionary explanation for risk aversion," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 51-61.

    More about this item

    Keywords

    Happiness ; Health ; Risk-taking (Psychology);

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G00 - Financial Economics - - General - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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