Relative Rank and Life Satisfaction: Evidence from US Households

39 Pages Posted: 7 Feb 2017

See all articles by Gordon D. A. Brown

Gordon D. A. Brown

University of Warwick - Department of Psychology

John Gathergood

University of Nottingham - School of Economics

Joerg Weber

University of Exeter Business School - Department of Economics

Date Written: February 7, 2017

Abstract

We use the Panel Study of Income Dynamics (PSID), a longitudinal study of a representative sample of the US population, to examine social rank effects on the relationship between life satisfaction and economic status. We examine the effects of income, home values, mortgage debts, financial assets and credit card debts. We find that the absolute level of these economic variables does not influence life satisfaction, but (except for credit card debt) by the relative ranked position of the level within a social comparison group. The results are robust to (a) a wide range of controls, (b) choice of comparison group, (c) individual fixed effects, (e) reference-group mean comparisons and (f) various competing transformations of the absolute levels of the predictor variables. We also find that the effects of relative rank are stronger when income inequality is high. We conclude that social comparison effects underpin the relationship between economic status and subjective well-being, and that concern with social status is higher when income inequality is high.

Keywords: relative rank, social comparison, life satisfaction, income inequality

JEL Classification: D03, D12, D60

Suggested Citation

Brown, Gordon D. A. and Gathergood, John and Weber, Joerg, Relative Rank and Life Satisfaction: Evidence from US Households (February 7, 2017). Available at SSRN: https://ssrn.com/abstract=2912892 or http://dx.doi.org/10.2139/ssrn.2912892

Gordon D. A. Brown

University of Warwick - Department of Psychology ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

Sir Clive Granger Building
University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://https://sites.google.com/site/gathergoodjohn/

Joerg Weber

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom

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