The effect of relative concern on life satisfaction : relative deprivation and loss aversion
Leites Lamela, Martin (Universidad de la República)
Ramos Morilla, Xavier (Universitat Autònoma de Barcelona)

Publicació: Bonn Institute for the Study of Labor 2018
Descripció: 35 pag.
Resum: Income comparisons are important for individual well-being. We examine the shape of the relationship between relative income and life satisfaction, and test empirically if the features of the value function of prospect theory carry on to experienced utility. We draw on a unique dataset for a middle-income country, that allows us to work with an endogenous reference income, which differs for individuals with the same observable characteristics, depending on the perception error about their relative position in the distribution. We find the value function for experienced utility to be concave for both positive and, at odds with prospect theory, also negative relative income. Loss aversion is only satisfied for incomes that are sufficiently distant from the reference income. Our heterogeneity analysis shows that the slope of the value function differs across individuals who care differently about income comparisons, people with different personality traits, or social beliefs.
Ajuts: Ministerio de Ciencia y Tecnología ECO2016-76506-C4-4-R
Agència de Gestió d'Ajuts Universitaris i de Recerca 2017/SGR-1571
Drets: Tots els drets reservats
Llengua: Anglès
Col·lecció: Discussion paper (Institute for the Study of Labor) ; 11404
Document: workingPaper
Matèria: Life satisfaction ; Relative income ; Loss aversion ; Prospect theory

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