Money and Happiness in India: Is Relative Comparison Cardinal or Ordinal and Same for All?

Lakshmanasamy T ()

Journal of Quantitative Economics, 2022, vol. 20, issue 4, No 7, 957 pages

Abstract: Abstract The relative income hypothesis is often invoked to explain the absence of a systematic long-run relationship between income and happiness. It is not yet clear with what and with whom individuals compare their income, whether the social comparison is cardinal or ordinal, and whether the effect of such reference income is the same for all in their evaluation of life satisfaction. Studies often estimate the relative income effect on happiness using cardinal average reference income by ordered probit regression, in which the covariate effects are constant across happiness levels. To overcome these twin issues, this paper specifies two alternative ordinal relative income measures, rich or poor relative to average income and rank position within the reference group income distribution, and estimates their differential effects across happiness distribution by panel random effects generalised ordered probit method. The panel REGOPROB estimates of WVS data of India over a longer period of 24 years from 1990 to 2014 across states show that Indian people are more sensitive to social comparison than to individual income and the ordinal comparison is stronger than the cardinal comparison in the evaluation of life satisfaction. A rise in the rank position within the reference group is relatively more important for people with average levels of life satisfaction than for individuals at the extremes of life satisfaction distribution, either dissatisfied/unhappy or satisfied/happy Indians.

Keywords: Happiness; Life satisfaction; Social comparison; Cardinal vs ordinal comparison; Differential effects; Random effects generalised ordered probit regression (search for similar items in EconPapers)
JEL-codes: A13 B23 C23 C25 C35 D31 I31 J17 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s40953-022-00326-7

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