Do Happier Britons Have More Income? First-Order Stochastic Dominance Relations

Peter Hammond, Federica Liberini and Eugenio Proto

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Using British Household Panel Survey data, for subjects not reporting the highest permitted satisfaction level, we show that the conditional income distribution given a higher reported level of life satisfaction rst-order stochastically dominates the corresponding conditional distribution given any lower satisfaction level. Subjects reporting the highest satisfaction level, however, have an income distribution dominated by distributions for some less satis ed individuals. Interestingly, this \top anomaly" is undetectable by standard ordered probit analysis. An alternative binary probit model for reporting maximal satisfaction suggests a possible explanation: more educated subjects not only tend to have higher income, but are also less likely to report maximal satisfaction.

Date: 2013
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