The Relationship between Income and Satisfaction: The Effect of Measurement Error and Suppressor Variables

In this paper the author attempts, as far as possible, to explain the subjective variable ``life satisfaction' by the objective variable ``income'. The reason for this is that the effect of the objective living conditions on the subjective feelings of people has been found to be very small. Much to the surprise of the author, a considerable effect of the objective variable has been found in a Russian panel study where it was possible to use lagged variables as suppressor variables and to correct for measurement errors in the different variables. This result lends considerable support for the dynamic equilibrium model as an explanatory theory of satisfaction.