Advertisement

Affluence: More Relative Than Absolute

  • Mariano Rojas
Chapter
Part of the Social Indicators Research Series book series (SINS, volume 76)

Abstract

Previous studies on the relationship between consumption and subjective well-being do assume that well-being emerges out of the relationship between the person and her consumption bundle, with no role at all for contextual factors such as other people’s consumption.

This chapter studies the importance that contextual factors play in the relationship between subjective well-being and ownership of durable goods. It takes advantage of a large and representative survey implemented in Mexico in 2014 to study the importance of absolute and relative effects in the ownership of durable goods. A relative effect takes place when well-being is attained from the relative standing the goods provide; this is, from having what others do not have. An absolute effect takes place when well-being from consumption is independent of what other people have. The distinction between relative and absolute effects matters because it has important well-being implications: Generalized increases in ownership of durable goods trigger well-being only when the absolute effect is positive and significant.

This research shows that the absolute effect in the ownership of durable goods is small in the case of Economic satisfaction and practically nil in the case of Life satisfaction. It is also shown that the relative effect is very large, indicating that both life satisfaction and economic satisfaction are highly sensitive to relative standings in the possession of durable goods. Hence, the conveniences and services that many durable goods provide seem to generate little well-being, while most of the well-being benefits emerge from having what others do not have. This is a major issue because it may trigger a kind of status race which may end up being a social trap: people own more durable goods but have no more well-being. The chapter also shows that the phenomenon replicates in the specific case of owning a car: the greater well-being reported by those who own a car emerges from the superior social status it is associated to, rather than by the conveniences and comfort that car ownership provides.

Keywords

Life satisfaction Economic satisfaction Durable goods Relative effect Absolute effect 

References

  1. Alpízar, F., Carlsson, F., & Johansson-Stenman, O. (2005). How much do we care about absolute versus relative income and consumption? Journal of Economic Behavior & Organization, 56, 405–421.Google Scholar
  2. BIARE. (2014). Encuesta Nacional de Bienestar Autorreportado, Instituto Nacional de Estadística y Geografía, México, 2014.Google Scholar
  3. Binswanger, M. (2006). Why does income growth fail to make us happier?: Searching for the treadmills behind the paradox of happiness. The Journal of Socio-Economics, 35(2), 366–381.Google Scholar
  4. Brosnan, S. F., & de Waal, F. B. (2003). Monkeys reject unequal pay. Nature, 425, 297–299.Google Scholar
  5. Carlsson, F., Gupta, G., & Johansson-Stenman, O. (2008). Keeping up with the vaishyas: Caste and relative standing. Oxford Economic Papers, 61(1), 52–73.Google Scholar
  6. Clark, A., & Oswald, A. (1996). Satisfaction and comparison income. Journal of Public Economics, 61, 359–381.Google Scholar
  7. Clark, A., Frijters, P., & Shields, M. (2008). Relative income, happiness and utility: An explanation for the easterlin paradox and other puzzles. Journal of Economic Literature, 46(1), 95–144.Google Scholar
  8. Clark, A. E., Senik, C., & Yamada, K. (2017). When experienced and decision utility concur: The case of income comparisons. Journal of Behavioral and Experimental Economics, 70, 1–9.Google Scholar
  9. DeLeire, T., & Kalil, A. (2010). Does consumption buy happiness? Evidence from the United States. International Review of Economics, 57(2), 163–176.Google Scholar
  10. Duesenberry, J. S. (1949). Income, savings, and the theory of consumer behaviour. Cambridge: Harvard University Press.Google Scholar
  11. Dumludag, D. (2015). Consumption and life satisfaction at different levels of economic development. International Review of Economics, 62(2), 163–182.Google Scholar
  12. Easterlin, R. (1974). Does economic growth enhance the human lot? Some empirical evidence. In P. A. David & M. Reder (Eds.), Nations and households in economic growth: Essays in honour of Moses Abramovitz (pp. 89–125). Palo Alto: Stanford University Press.Google Scholar
  13. Felson, R., & Reed, M. (1986). Reference groups and self-appraisals of academic ability and performance. Social Psychology Quarterly, 49(2), 103–109.Google Scholar
  14. Ferrer-i-Carbonell, A. (2005). Income and well-being: An empirical analysis of the comparison income effect. Journal of Public Economics, 89(5–6), 997–1019.Google Scholar
  15. Frank, R. (1985). Choosing the right pond. Human behavior and the quest for status. New York/Oxford: Oxford University Press.Google Scholar
  16. Gandhi Kingdon, G., & Knight, J. (2007). Community, comparisons and subjective well-being in a divided society. Journal of Economic Behavior & Organization, 64(1), 69–90.Google Scholar
  17. Goerke, L., & Pannenberg, M. (2015). Direct evidence for income comparisons and subjective well-being across reference groups. Economics Letters, 137, 95–101.Google Scholar
  18. Gokdemir, O. (2015). Consumption, savings and life satisfaction: The Turkish case. International Review of Economics, 62(2), 183–196.Google Scholar
  19. Hirsch, F. (1976). Social limits to growth. Cambridge: Harvard University Press.Google Scholar
  20. Hopkins, L., & Kornienko, T. (2004). Running to keep in the same place: Consumer choice as a game of status. American Economic Review, 94(4), 1085–1107.Google Scholar
  21. Hyman, H. H. (1960). Reflections on reference groups. The Public Opinion Quarterly, 24(3), 383–396.Google Scholar
  22. Johansson-Stenman, O., & Martinsson, P. (2006). Honestly, why are you driving a BMW? Journal of Economic Behavior and Organization, 60, 129–146.Google Scholar
  23. Kapteyn, A., & van Herwaarden, F. G. (1980). Interdependent welfare functions and optimal income distribution. Journal of Public Economics, 14, 375–397.Google Scholar
  24. Kapteyn, A., van Praag, B. M. S., & Herwaarden, F. G. v. (1978). Individual welfare functions and social reference spaces. Economic Letters, 1(2), 173–177.Google Scholar
  25. Kapteyn, A., van de Geer, S., van de Stadt, H., & Wansbeek, T. (1997). Interdependent preferences: An econometric analysis. Journal of Applied Econometrics, 12, 665–686.Google Scholar
  26. Luttmer, E. F. (2005). Neighbors as negatives: Relative earnings and well-being. The Quarterly Journal of Economics, 120(3), 963–1002.Google Scholar
  27. Marmot, M. (2004). Status syndrome. London: Bloomsbury.Google Scholar
  28. Mazur, A., & Lamb, T. A. (1980). Testosterone, status, and mood in human males. Hormones and Behavior, 14(3), 236–246.Google Scholar
  29. McBride, M. (2001). Relative-income effects on subjective well-being in the cross-section. Journal of Economic Behavior and Organization, 45, 251–278.Google Scholar
  30. Merton, R. (1957). Social theory and social structure. Glencoe: Free Press of Glencoe.Google Scholar
  31. Merton, R., & Kitt, A. (1950). Contribution to the theory of reference group behavior. In R. Merton & P. Lazarsfeld (Eds.), Continuities in social research: Studies in the scope and method of ‘The American soldier’. New York: Free Press.Google Scholar
  32. Moldovanu, B., Sela, A., & Shi, X. (2007). Contests for status. Journal of Political Economy, 115, 338–363.Google Scholar
  33. Noll, H. H., & Weick, S. (2015). Consumption expenditures and subjective well-being: Empirical evidence from Germany. International Review of Economics, 62(2), 101–119.Google Scholar
  34. Okulicz-Kozaryn, A., Nash, T., & Tursi, N. O. (2015). Luxury car owners are not happier than frugal car owners. International Review of Economics, 62(2), 121–141.Google Scholar
  35. Parducci, A. (1968). The relativism of absolute judgments. Scientific American, 219, 84–90.Google Scholar
  36. Parducci, A. (1995). Happiness, pleasure, and judgment: The contextual theory and its applications. Hillsdale: Lawrence Erlbaum.Google Scholar
  37. Postlewaite, A. (1998). The social basis of interdependent preferences. European Economic Review, 42, 779–800.Google Scholar
  38. Runciman, W. G. (1966). Relative deprivation and social justice: A study of attitudes to social inequality in twentieth-century England. London: Routledge.Google Scholar
  39. Sacerdote, B. (2001). Peer effects with random assignment: Results for dartmouth roommates. The Quarterly Journal of Economics, 116(2), 681–704.Google Scholar
  40. Samuelson, L. (2004). Information-based relative consumption effects. Econometrica, 72, 93–118.Google Scholar
  41. Schor, J. (1998). The overspent American: Upscaling, downshifting and the new consumer. New York: Basic Books.Google Scholar
  42. Schor, J. (1999). The new politics of consumption: Why Americans want so much more than they need, Boston Review, Summer.Google Scholar
  43. Schor, J. (2002). Understanding the new consumerism: Inequality, emulation and the erosion of well being. Tijdschrift voor Sociologie, 23(1), 10–20.Google Scholar
  44. Senik, C. (2004). When information dominates comparison: Learning from Russian subjective panel data. Journal of Public Economics, 88(9–10), 2099–2123.Google Scholar
  45. Senik, C. (2007). Income comparisons. Which income gaps matter most to people? Working paper 2007-19. Paris School of Economics.Google Scholar
  46. Senik, C. (2009). Direct evidence on income comparisons and their welfare effects. Journal of Economic Behavior and Organization, 72(1), 408–424.Google Scholar
  47. Stutzer, A. (2004). The role of income aspirations in individual happiness. Journal of Economic Behavior & Organization, 54, 89–109.Google Scholar
  48. Suls, J., & Wills, T. A. (1991). Social comparison: Contemporary theory and research. Hillsdale: Lawrence Erlbaum Associates, Inc., Publishers.Google Scholar
  49. van Praag, B. M. S., & Ferrer-i-Carbonell, A. (2004). Happiness quantified: A satisfaction calculus approach. Oxford, UK: Oxford University Press.Google Scholar
  50. Veblen, T. (1899). The theory of the leisure class, Reprinted, Modern Library, New York, 1934.Google Scholar
  51. Veenhoven, R. (1991). Is happiness relative? Social Indicators Research, 24, 1–34.Google Scholar
  52. Weber, M. (1922). Wirtschaft und Gesellschaft, 1978 English edition as economy and society, Berkeley: University of California Press.Google Scholar
  53. Wilkinson, R., & Pickett, K. (2011). The spirit level: Why greater equality makes societies stronger. New York: Bloomsbury Press.Google Scholar
  54. Winkelmann, R. (2012). Conspicuous consumption and satisfaction. Journal of Economic Psychology, 33, 183–191.Google Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Mariano Rojas
    • 1
  1. 1.Facultad Latinoamericana de Ciencias Sociales Sede México/Universidad Popular Autónoma del Estado de Puebla MexicoPueblaMexico

Personalised recommendations