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Preferences, income, and life satisfaction: An equivalence result

Holger Strulik ()

No 171, Center for European, Governance and Economic Development Research Discussion Papers from University of Goettingen, Department of Economics

Abstract: In this paper I investigate the nexus between life time utility (life satisfaction) and income predicted by the standard model of endogenous economic growth under different behavioral assumptions. The solution rationalizes why the empirical association between income and life satisfaction is approximately log-linear. I show that the solution is observationally equivalent when individuals compare their consumption (i) with others, (ii) with their own past consumption achievements, and (iii) not at all (ordinary preferences). This finding suggests that the observed slope of the income - life satisfaction curve is uninformative about human behavior driven by referencedependent utility. In particular, the hypothesis that the flattening of the life satisfaction curve at high income levels indicates that people are comparing their consumption too much with others or own past achievements is not supported by the workhorse model of endogenous economic growth.

Keywords: status; habit formation; happiness; economic growth (search for similar items in EconPapers)
JEL-codes: D90 E21 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo and nep-hap
Date: 2013
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https://www.econstor.eu/bitstream/10419/80431/1/76625495X.pdf (application/pdf)

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Journal Article: Preferences, income, and life satisfaction: An equivalence result (2015) Downloads
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