Life Satisfaction, Household Income and Personality Theory

40 Pages Posted: 18 Aug 2012

See all articles by Eugenio Proto

Eugenio Proto

CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Date Written: April 1, 2012

Abstract

We show that personality traits mediate the effect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own. To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from 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 increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

Keywords: Life Satisfaction, Household Income, Personality Theory, Neuroticism

JEL Classification: D03, D870, C33

Suggested Citation

Proto, Eugenio and Rustichini, Aldo, Life Satisfaction, Household Income and Personality Theory (April 1, 2012). SOEPpaper No. 453. Available at SSRN: https://ssrn.com/abstract=2131159 or http://dx.doi.org/10.2139/ssrn.2131159

Eugenio Proto (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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