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Adaptation and Loss Aversion in the Relationship between GDP and Subjective Well-being

Author

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  • Hovi Matti
  • Laamanen Jani-Petri

    (Faculty of Management, University of Tampere)

Abstract

We examine the roles of adaptation and loss aversion in the relationship between national income and subjective well-being. Earlier studies have found that people and nations tend to adapt to changes in income, and that well-being is more sensitive to income losses than to income gains. We apply a model which allows for both adaptation and asymmetries to cross-country panel data. We find evidence for both short-run and long-run loss aversion. Asymmetry becomes more important over time because the effects of income increases become statistically insignificant, whereas the effects of income decreases are significant and large also in the long run.

Suggested Citation

  • Hovi Matti & Laamanen Jani-Petri, 2017. "Adaptation and Loss Aversion in the Relationship between GDP and Subjective Well-being," Working Papers 1717, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:1717
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    File URL: http://urn.fi/URN:ISBN:978-952-03-0575-8
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    References listed on IDEAS

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    Cited by:

    1. Hovi Matti, 2020. "The Lasting Well-being Effects of Early Adulthood Macroeconomic Crises," Working Papers 1823, Tampere University, Faculty of Management and Business, Economics.

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    More about this item

    Keywords

    Subjective well-being; Life satisfaction; Happiness; Adaptation; Loss aversion; Output; Income; GDP; Economic growth; Macroeconomics; Easterlin paradox;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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