If money doesn’t make us happy, why do we act as if it does?

Research on income and subjective well-being shows that among the non-poor, increased income has little or no lasting impact on happiness. Yet the desire for more income remains a powerful motive among many people at all income levels. Is this simply because many people are misinformed and believe that higher incomes will make them happier, or are they motivated by something other than the pursuit of happiness? This paper argues for the latter. The paper begins by exploring this question, reviewing the literature on income and subjective well-being, and discussing of the role of utility in decision making. This paper then argues that three main factors lead us to value increased income even if it does not make us happier. First, happiness is just one value among many, and not the only conscious goal people set for themselves. Second, even when people are striving to maximize happiness, our tendency to overweight short-term payoffs leads us to overvalue the short-term rewards that income provides. Finally, I argue that our values-based decision making competes with other motivational systems and evolutionary drives. Three evolutionary desires are discussed: (1) to store resources, (2) to be sexually attractive, and (3) to manage our social relationships and our personal identity within those relationships. While all three motivations play a role in our desire for increased income, this paper argues that it is the third – the use of money and consumption as a social tool – that has the most important overall influence on our desire for increased income past the point where it ceases to increase personal happiness.     

Subjective well-being and reference-dependence: Insights from Mexico

Data from Mexico are used to examine whether two indicators of subjective well-being??income satisfaction and income adequacy??correlate not only with the respondent??s absolute level of income, but also with their assessment of how their income compares relative to the income of a reference group, the level of income they hoped to have achieved by that stage of their life, and the income they had three years earlier. Both subjective well-being indicators correlate positively with the ranking relative to all three reference points. Some of the findings differ across segments of the income distribution. Subjective well-being assessments of the poor are influenced more by the inability to achieve income aspirations, while differences with respect to others is a more prominent factor among non-poor respondents.     

Variations in subjective well-being when ‘aging in place’ — A matter of acceptance,predictability and control

The aim of the present study is to explore how older home-help recipients regard their life situation in terms of subjective well-being. The background is that there seem to be two counteracting forces affecting the achievement of subjective well-being among home-help recipients: on one hand, both diminished everyday competence and dependence on others' help are supposed to reduce subjective well-being, and on the other hand, living in one's own home is supposed to affect subjective well-being positively. The analysis is based on qualitative interviews with 21 home-help recipients between the ages of 78 and 93. The findings indicate that the informants' expressions of subjective well-being fall into four main categories: ‘well-being’, ‘well-being despite it all’, ‘well-being so far’, and ‘lack of well-being’. Three comprehensive core themes were identified as relevant to a deeper understanding of the informants' various expressions of well-being. These core themes are acceptance, predictability, and control. The findings point to the possibility of experiencing subjective well-being despite diminished everyday competence and dependence on help and support from others. They suggest, in short, that subjective well-being among older people who receive help and support in their everyday lives is not only related to socio-contextual factors – such as physical and mental capability, activities and/or engagement in the outside world, the spatial and social consequences of physical limitations, social and emotional relations, as well as the social support they receive – but also to how they regard and handle these matters in terms of acceptance, predictability and control.     

Family labor supply,taxation and saving in an imperfect capital market

This paper combines income and expenditure with time use data to provide a unique picture of the labor supply, household production, saving and consumption decisions of two-adult households over a life cycle defined in terms of the presence and ages of children. The study also draws on data for household borrowing and lending, direct and indirect benefits and taxes to calibrate a “family” life cycle model at the core of which is the hypothesis that households face a borrowing interest rate that rises with the amount of non-collateral based borrowing. The household members jointly choose time paths of time use, consumption and saving over their life cycle in the face of this capital market imperfection. Importantly, households are shown to differ significantly in their saving behavior in a way that depends on secondary earner labor supply, with a strong positive association between saving and the income of the second earner. The results differ sharply from those of the existing literature.     

ASSET MANAGEMENT,ALLOCATION OF TIME,AND RETURNS TO SAVING*

The paper entertains the proposition that individuals' time performs a productive role in generating nonwage income through the management of nonhuman capital assets. The asset management hypothesis is used to develop a life cycle model of consumptive and productive decisions. The model allows for variations in gross rates of return both across persons at a point in time and for any one person over his life cycle. The behavioral implications developed show that differences across consumption units in their time allocations and in their borrowing, saving, and asset holding decisions may be the result of differences in opportunities rather than “tastes.”     

Disentangling the housing satisfaction puzzle: Does homeownership really matter?

There is a general consensus that homeownership has beneficial effects for both individuals and society in many outcomes. However, research regarding the effect of homeownership on individuals’ subjective well-being remains inconclusive. In this paper, for the first time, we provide empirical evidence for the link between homeownership and housing satisfaction using panel data. We use the eight waves of the European Community Household Panel (ECHP) covering the period 1994–2001. We observe that renters who become homeowners not only experience a significant increase in housing satisfaction, but also after changing their tenure status, they obtain a different utility from the same housing context. This evidence might provide support to the hypothesis that a share of the differences in the perceived utility derived from housing can be attributed to (un)fulfilled expectations or aspirations regarding homeownership.     

‘Paradoxical’ decline? Another look at the relative reduction in female happiness

In a provocative paper, Stevenson and Wolfers (2009) provide evidence that women over the last several decades experienced an absolute and relative decline in happiness. The current paper draws upon novel data from the DDB Needham Life Style Survey to take another look at the evolution of women’s subjective well-being. In contrast to Stevenson and Wolfers, I find that men and women between 1985 and 2005 experienced similar decreases in life satisfaction. Furthermore, both sexes witnessed comparable slippages in self-confidence, growing regrets about the past, and declines in virtually every measure of self-reported physical and mental health. The data also show that men’s well-being in recent years has begun to fall more rapidly than that for women. In the final section of the paper, I present some initial evidence that the steady erosion in social and civic engagement, interpersonal trust, and financial security could be partially responsible for the widespread decline in subjective well-being over the past few decades.     

Knowing what is good for you: Empirical analysis of personal preferences and the “objective good”

This paper aims to test empirically if certain frequently used measures of well-being, which are regarded as valuable properties of human life, are actually desired by people. In other words, it investigates whether the “expert judgments” in social science overlap with social consensus on what the “good life” is. The starting hypothesis is that there is an overlap between these two in the case of basic needs. For the analysis, individuals’ self-reported life satisfaction is used as a proxy for “utility”, based on survey data, which includes about 30,000 individuals from 21 different European countries. The results indicate that the commonly used measures of well-being – labour market situation, health, housing conditions and social relations – significantly influence people's satisfaction, ceteris paribus. Next, the stability of preferences is tested using Hungarian data from the 1990s. The results indicate that there was only very limited change in the relationship between life satisfaction and basic measures of well-being despite the landslide of societal and economic transformation.     

Putting measures of individual well-being to use for ex-ante policy evaluation

Most studies using microsimulation techniques have considered the effect of potential reforms on the income distribution. However, it has become increasingly recognized, both at the academic and political level, that focusing purely on income provides a limited picture of social progress. We illustrate how ex-ante policy evaluation can be performed in terms of richer concepts of individual well-being, such as subjective life satisfaction and equivalent incomes. Our analysis makes use of EUROMOD, the EU-wide tax-benefit microsimulation model, along with 2013 EU-SILC data for Sweden, which for the first time provides information on life satisfaction. Our results show that the effect of potential reforms varies widely depending on the well-being concept used in the evaluation. We discuss the normative questions that are raised by this finding.     

A Theory of Time Preference

This article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption (eventually) falls as their mental and physical abilities (eventually) decline with age. Moreover, contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age, this article asserts that discounting increases over the life cycle. This hypothesis is supported by data from the Panel Study of Income Dynamics as well as evidence from numerous previous studies.     

Economic convergence and life satisfaction in the European Union

The issue of convergence or divergence in the European Union (EU) is usually viewed from a macroeconomic perspective, using indicators such as the income per head, the unemployment rate and the inflation rate. Little attention has been paid to the possibility of an associated convergence in ‘well-being’ across countries. Since recent literature has shown that subjective well-being (life satisfaction, ‘happiness’) is significantly affected by macroeconomic variables, it is natural to ask not only whether or not subjective well-being converges, but also, whether, how and to what extent this process is linked to macroeconomic convergence. In this paper we use self-rated life satisfaction elicited in large scale surveys to address these questions. We find evidence of convergence of life satisfaction across the member states of the EU, which can be attributed to a considerable extent to the convergence in macroeconomic conditions. Among the various macroeconomic indicators, the convergence in inflation rates has played a major role for the convergence in life satisfaction.     

Life satisfaction,income and personality

We use personality traits to better understand the relationship between income and life satisfaction. Personality traits mediate the effect of income on life satisfaction. The effect of neuroticism, which measures sensitivity to threat and punishment, is strong in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: individuals with a higher neuroticism score enjoy extra income more than those with a lower score if they are poorer, and enjoy extra income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have a significant effect on its own. To interpret the results, we present a simple model based on Prospect Theory, where we assume that: (i) life satisfaction is dependent on the gap between aspired and realized income, and this is modulated by neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increases with aspirations. From the estimation of this model we argue that poorer individuals tend to over-shoot in their aspirations, while the rich tend to under-shoot. The estimation of the model also shows a substantial effect of traits on income.     

Is family planning an economic decision?

This study examines economic models of household choice and the role of economic factors in determining the timing of births. A static economic model is presented and tested with data from the Netherlands. After the availability of contraceptives, the family size variable shifted from being an exogenous to an endogenous one, because births could be regulated. Costs of childbearing were construed to have maintenance costs for parents and society, attendance costs of care, and intangible costs such as anxiety or personal freedom. Benefits were intangible ones, such as joy and happiness; income; public benefits; and attendance benefits. Intangible benefits enlarged the utility of children, but maintenance costs diminished resources available for consumption. Child quality was a product of market goods purchased by parents and others and household labor. Household time allocation varied with child's age. Private responsibility for children varied by country. Quality of child care varied between countries and over time. Quality was dependent upon economies of scale, variable costs by the age of the child, variable time commitments by age of the child, and market substitutes for private child care. Higher income families spent more money but less time on children. It is pointed out that Becker's model explained number of children, but not timing of births. Postponement of birth was unlikely for those with a limited education, an unpleasant job, and low wages. When the advantages and disadvantages of having a baby were positive, spouses or single women with a high subjective preference were expected to bear a child as soon as possible. Government policy can affect the average family size by increasing or decreasing the financial and/or time burden of children. Postponement may be chosen based on long term analysis of a couple's future, the formation and use of capital, and/or high subjective time preference. Before and after first birth are different frames of reference for couples. Before the birth, the future may be vague. After the birth, life without a child becomes unimaginable.     

Work time. Leisure time. On women's temporal and economic well-being in Europe

In the study of work time, a wealth of influential ideas has emerged about the potentially damaging impact of too many hours in the labour market on the rest of peoples' lives, as well as about the negative economic ramifications of short hours working. The paper focuses on the temporal and economic well-being of female employees in Europe, stimulated by the importance of work time in debates over time poverty and work life integration. It asks whether women in shorter hours jobs are happiest with their time for paid work and leisure, but also what might the lower wages from reduced hours working mean for women, particularly those in low-level occupations. The paper shows first that although working fewer hours contributes to women's satisfaction with their time in many countries, it is long full-time hours that have the strongest (negative) relationship with women's temporal well-being across Europe. Second, the paper demonstrates the damaging impact of working in low-level occupations – both part-time and full-time – on the economic well-being of women's households. It stresses the importance of a combined work time and occupational class approach in the ongoing analysis of women's working lives.     

THE PRICE TAG OF RESPONSIBILITY

An opportunity in single-parenthood for women is the enhanced sense of competence. Yet, a well-documented hazard is depressed well-being. Remarriage may reverse these outcomes. This study compared two matched samples of divorced and remarried mothers. Contrary to the research hypothesis, remarried mothers had both a higher sense of competence and well-being than divorced mothers, which was significantly related to feelings of competence and satisfaction in the areas of love, community, and homemaking. There were no differences in other areas, such as work or parenting. Differences in income were significantly related to these outcomes, but did not predict a particular competence and well-being type. Remarried mothers were high on the "Love Competency" and "Achievement" Factors and low on the "Friendships" Factor, while the reverse was true for the divorced; these differences best distinguished the two marital groups. Overall, the sense of competence and well-being were dependent and dynaniically inseparable, both globally and in specific life areas. Risks to the sense of competence and well-being for single-parents were feeling in control of and satisfied with their time, finances, current lives (especially in areas of love, community, homemaking), aspirations, and futures. With proper attention to the legitimization and support of the single-parent, intervention might best focus also on single-parenthood as a training ground for self-empowerment and not remarriage.     

Detecting a change in wealth concentration without the knowledge of the wealth distribution

Consumption is commonly used as a proxy for permanent income. We go a step further by establishing the link between the distribution of consumption and that of permanent income in terms of dominance orderings. We introduce two new dominance orderings, the Generalized Top Lorenz test and the related affluence ordering. If consumption is a concave function of permanent income, we get an indirect and robust method to detect a change in permanent income concentration when the full stream of income receipts along the life cycle is unknown and only consumption data are available. Our application on US data for the period 1980?C2002 points out the difficult start in life of people belonging to the ??Baby loser generation?? (people born in the sixties) with respect to the previous and following cohort.     

Pursuit of happiness: Subjective well-being of immigrants and natives

Recent studies establish that subjective well-being plays a significant part in the adjustment of immigrants in the host country and that after facing the initial costs of migration, immigrants experience levels of well-being similar to natives across generations. Using two surveys, including the World Values Survey as well as the joint World Values Survey and European Value Survey, we, however, find that variations in subjective well-being of immigrants and natives persist across generations, with second-generation immigrants experiencing higher differences. This finding can be attributed to an increase in the aspirations of second-generation immigrants. In developed regions, both first-generation and second-generation immigrants have a higher probability of reporting greater subjective well-being than natives, which can be attributed to an improved standard of living among immigrants. Additionally, we look at the association between holding immigration-friendly attitudes and the subjective well-being of natives. Our study provides important policy insights.     

我国居民收入与幸福感关系的研究

本研究在较为系统地考察以往收入与幸福感关系研究的基础上,采用已经公开的政府统计数据、6个省会城市的调查数据,以及来自山东省城市居民连续7年的调查数据,对我国城市居民收入与幸福感的关系进行较为深入的分析。研究发现:在现阶段的中国,收入与城市居民幸福感之间具有一定的正相关;地区富裕程度不同会对二者之间的关系产生影响;高收入群体幸福感水平明显高于低收入群体;从一段时期内考察,地区居民幸福指数并没有随国民收入的增长而同步增长;地区富裕程度与居民幸福感水平之间相关不明显。研究的主要政策主张有:中国在相当长的时期内还需以快速良性的经济发展来保证居民收入的稳定增长,为个体自由全面的发展提供必要的物质保障;保障民生,建立与完善促进个体自由全面发展的利益调整机制,加大公共产品,特别是社会保障的供给力度。     

Children's subjective well-being: International comparative perspectives

We are enjoined by the United Nations Convention on the Rights of the Child to take account of the views of children. One way this can be done is by asking children about their lives in sample surveys. This paper is a comparison of the results obtained to sample survey questions on subjective well-being of children at two contrasting levels of analysis—international macro (European Union 29) and national level micro (England). At both levels, children's well-being is accessed in terms of three subjective domains: (1) personal well-being, (2) relational well-being, and (3) well-being at school. At the micro level we also explore neighbourhood well-being.The results show that at the macro level personal well-being is associated with the material and housing circumstances but not family relationships or family structure. Well-being at school is not associated with any variable. Subjective health is only associated with family structure. At the micro level, although many of the demographic and socio-economic characteristics of children are found to be associated with their well-being in the four domains, these factors explain only a small amount of the variation in these well-being domains.     

Life Satisfaction and Preferences over Economic Growth and Institutional Quality

This paper demonstrates that institutional factors have differential impacts on subjective well-being of individuals in rich versus poor countries. A lower level of corruption, a more democratic government and better civil rights increase the well-being of individuals in rich countries, whereas an increase in per capita income has no impact. On the contrary, in poor countries the extent of corruption, democracy or civil rights has no influence on happiness, but an increase in per capita income impacts happiness positively. We provide evidence that this stark contrast may be due to the difference of preferences over economic growth and institutional factors.