Inside the Life Satisfaction Blackbox

Abstract

We propose a measure of life satisfaction, alternative to the standard synthetic cognitive wellbeing question, based on the specific contribution of eleven life satisfaction sub-components (including satisfaction about the past, life opportunities, hope for the future, vitality, control over one’s on life, meaning of life). The alternative measure is either estimated as a latent factor, obtained as a simple unweighted average from the above mentioned sub-components, or extracted with principal component analysis. We document that the new dependent variable fits much better standard socio-demographic controls and corrects the “Danish life satisfaction bias” in the direction suggested by the vignette approach. These findings do not reject our theoretical assumption that the alternative measures derived from the life satisfaction sub-components are less noisy and less culturally biased and therefore perform better than the standard self-reported life satisfaction. The straightforward policy advice of the paper is to introduce the above mentioned sub-components (similarly to what happens with sub-questions used to calculate the General Health Questionnaire score) in an additional question to measure more effectively subjective wellbeing.

Keywords: life satisfaction, country bias, measurement error, multiple indicators

JEL Classification: I30, I31