Nominal or Real? The Impact of Regional Price Levels on Satisfaction with Life

According to economic theory, real income, i.e., nominal income adjusted for purchasing power, should be the relevant source of life satisfaction. Previous work, however, has only studied the impact of inflation adjusted nominal income and not taken into account regional differences in purchasing power. Therefore, we use a novel data set to study how regional price levels affect satisfaction with life. The data set comprises about 7 million data points that are used to construct a price level for each of the 428 administrative districts in Germany. We estimate pooled OLS and ordered probit models that include a comprehensive set of individual level, time-varying and time-invariant control variables as well as control variables that capture district heterogeneity other than the price level. Our results show that higher price levels significantly reduce life satisfaction. Furthermore, we find that a higher price level tends to induce a larger loss in life satisfaction than a corresponding decrease in nominal income. A formal test of neutrality of money, however, does not reject neutrality of money. Our results provide an argument in favor of regional indexation of government transfer payments such as social welfare benefits

Subjective Well-being in Rural India: The Curse of Conspicuous Consumption

Using data on 697 individuals from 375 rural low income households in India, we test expectations on the effects of relative income and conspicuous consumption on subjective well-being. The results of the multi-level regression analyses show that individuals who spent more on conspicuous consumption report lower levels of subjective well-being. Surprisingly an individual’s relative income position does not affect feelings of well-being. Motivated by positional concerns, people do not passively accept their relative rank but instead consume conspicuous goods to keep up with the Joneses. Conspicuous consumption always comes at the account of the consumption of basic needs. Our analyses point at a positional treadmill effect of the consumption of status goods

Interdependent Utilities: How Social Ranking Affects Choice Behavior

Organization in hierarchical dominance structures is prevalent in animal societies, so a strong preference for higher positions in social ranking is likely to be an important motivation of human social and economic behavior. This preference is also likely to influence the way in which we evaluate our outcome and the outcome of others, and finally the way we choose. In our experiment participants choose among lotteries with different levels of risk, and can observe the choice that others have made. Results show that the relative weight of gains and losses is the opposite in the private and social domain. For private outcomes, experience and anticipation of losses loom larger than gains, whereas in the social domain, gains loom larger than losses, as indexed by subjective emotional evaluations and physiological responses. We propose a theoretical model (interdependent utilities), predicting the implication of this effect for choice behavior. The relatively larger weight assigned to social gains strongly affects choices, inducing complementary behavior: faced with a weaker competitor, participants adopt a more risky and dominant behavior

Does Community Context Have an Important Impact on Divorce Risk? A Fixed-Effects Study of Twenty Norwegian First-Marriage Cohorts

The decision to divorce may be affected by the characteristics of the local community. Community characteristics may be barriers to divorce, or they may increase the attractiveness of divorcing (e.g., access to a good remarriage market), but our knowledge of such influences is sparse. This study examines two such community-level factors: socio-economic conditions and the local marriage market. In this study, discrete-time hazard models with community-level fixed effects are estimated using register-based data on Norwegian first marriages during the period from 1980 to 1999, with longitudinal information on both the community and couple levels (N = 283,493). The results show that there are important community-level influences on couples’ divorce risk, but these change dramatically when fixed effects are introduced

The subjective well-being political paradox: Evidence from Latin America

The subjective well-being political paradox describes the observation that individuals are on average more satisfied with their lives in welfare states than under right-leaning (conservative) governments, which are less likely to promote welfare policies; however, at the individual level, people who identify as leaning politically more to the right show higher levels of life satisfaction than those who describe themselves as leaning to the left. This subjective well-being political paradox has previously been observed in Europe. The present study investigates whether this paradox can also be found across 18 Latin American countries by using data from 9 waves of the Latinobarómetro survey. In addition to life satisfaction, we further consider respondents’ self-rated ability to meet their financial needs in a satisfactory manner, which can be seen as a proxy for satisfaction with income. Latin America is an interesting region to study this question because of its political history and the emergence of left-leaning governments during the last fifteen years. We find that people report higher life satisfaction and a better ability to meet their financial needs under left-leaning governments compared to centre and right-leaning governments. In contrast, conservative individuals report higher financial and overall well-being than liberal individuals, which confirms the subjective well-being political paradox that was also found in Europe. Our analysis includes controls for macroeconomic indicators, such as inflation and unemployment rates and GDP per capita as well as socio-demographic factors