Subjective Well-being and Reference Dependence: Insights from Mexico

Abstract

Data from Mexico are used to examine whether two indicators of subjective well-being — income satisfaction and income adequacy — correlate not only with the respondent’s absolute level of income, but also with their assessment of how their income compares relative to the income of a reference group, the level of income they hoped to have achieved by that stage of their life, and the income they had three years earlier. Both subjective well-being indicators correlate positively with the ranking relative to all three reference points. Some of the findings differ across segments of the income distribution. Subjective well-being assessments of the poor are influenced more by the inability to achieve income aspirations, while differences with respect to others is a more prominent factor among non-poor respondents.

*Previously circulated: UNU-WIDER Working Paper 2010/76

Keywords: Subjective Well-being, Reference Dependence, Aspirations, Reference Groups

JEL Classification: I32, O12