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The hump-shaped relation between income and life satisfaction

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Proto, Eugenio and Rustichini, Aldo (2011) The hump-shaped relation between income and life satisfaction. In: National Bureau of Economic Research Summer Institute 2011 : Income Distribution and Macroeconomics Workshop, Cambridge, Massachusetts, 19-22 Jul 2011 (Unpublished)

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Official URL: http://www.nber.org/confer/2011/SI2011/EFBGZ/Proto...

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Abstract

Individual Life Satisfaction depends in a hump-shaped way on household income, peaking around 150K-200K USD per year, and decreasing for larger values. This conclusion holds after controlling for a large set of potentially moderating factors, and for country and regional (European) average values.

A major puzzle follows: if higher income produces a reduction in Life Satisfaction, why should individuals strive to increase income? We test a potential explanation using individual personality traits. They all affect directly Life Satisfaction, but only Neuroticism systematically affects its relation with income. Life Satisfaction is never decreasing in income in individuals with low neuroticism. In high neuroticism individuals, Life Satisfaction peaks around 90K-120K USD, and decreases for higher values. We provide and test an explanation of these findings based on sensitivity to the gap between aspiration and realization in level of income.

Item Type: Conference Item (Paper)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics
Official Date: 20 July 2011
Dates:
DateEvent
20 July 2011Completion
Status: Not Peer Reviewed
Publication Status: Unpublished
Funder: Economic and Social Research Council (ESRC), National Science Foundation (U.S.) (NSF)
Grant number: RES-074-27-0018, RES-062-23-1385, SES-0924896
Conference Paper Type: Paper
Title of Event: National Bureau of Economic Research Summer Institute 2011 : Income Distribution and Macroeconomics Workshop
Type of Event: Conference
Location of Event: Cambridge, Massachusetts
Date(s) of Event: 19-22 Jul 2011
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