Preferences,income, and life satisfaction: An equivalence result |
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| Institution: | 1. Department of Economics, University of Colorado Denver, USA;2. Department of Statistics, Stanford University, USA;1. Department of Control Science and Engineering, Zhejiang University, Hangzhou 310058, PR China;2. Department of Computer Science, Ningbo University, Ningbo 315211, PR China;3. State Key Laboratory for Novel Software Technology, Nanjing University, Nanjing 210046, PR China;4. College of Electrical Information and Engineering, Tongji University, Shanghai 201804, PR China;1. IPAG and Paris School of Economics, Paris 1 University, 106-112 Bld de l’hôpital, 75013 Paris, France;2. National School of Applied Sciences, Ibn Zohr University, B.P: 1136, 80000 Agadir, Morocco;1. Rice University, Houston, TX, USA;2. UT MD Anderson Cancer Center, Houston, TX, USA |
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| 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 the presence and strength of habits or reference-dependent utility. |
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