The Role of Income Aspirations in Individual Happiness

Zurich IEER Working Paper No. 124

38 Pages Posted: 9 Apr 2003

See all articles by Alois Stutzer

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Date Written: February 2003

Abstract

Does individual well-being depend on the absolute level of income and consumption or is it relative to one's aspirations? In a direct empirical test, it is found that higher income aspirations reduce people's utility, ceteris paribus. Individual data on reported satisfaction with life are used as a proxy measure for utility, and income evaluation measures are applied as proxies for people's aspiration levels. Consistent with processes of adaptation and social comparison, income aspirations increase with people's income as well as with the average income in the community they live in.

Keywords: Aspiration level, interdependent preferences, relative income, subjective well-being, utility

JEL Classification: D60, D63, I31

Suggested Citation

Stutzer, Alois, The Role of Income Aspirations in Individual Happiness (February 2003). Zurich IEER Working Paper No. 124. Available at SSRN: https://ssrn.com/abstract=375961 or http://dx.doi.org/10.2139/ssrn.375961

Alois Stutzer (Contact Author)

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

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

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