Life Satisfaction, Income Comparisons and Individual Traits

People gain utility from occupying a higher ranked position in the income distribution of the reference group. This paper investigates whether these gains depend on an individual's set of personality and affective traits. Using the 2000 to 2013 waves of the German Socio-economic Panel dataset (SOEP), a subjective question on Life Satisfaction, and three different measures of personal and affective traits, we find significant and robust differences across groups and conclude that traits determine the relationship between rank and life satisfaction. The heterogeneity on the importance of income comparisons is relevant, for example, when building economic models, predicting individuals' behavior, or making welfare judgments.Santiago Budria acknowledges financial support from the Spanish Ministry of Education through grants ECO2012‐33993 and ECO2012‐36480, and by the Fundación Ramón Areces (Research Project: Determinants of social exclusion and recommendations for combating it); and Ada Ferrer‐i‐Carbonell acknowledges support from the Ministry of Economy and Competitiveness Grant through project grant ECO2014‐59302‐P and SeveroOchoa Programme for Centres of Excellence in R&D (SEV‐2015‐0563)