Skip to main content

Affluence: More Relative Than Absolute

  • Chapter
  • First Online:
Wealth(s) and Subjective Well-Being

Part of the book series: Social Indicators Research 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.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 119.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 159.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

Notes

  1. 1.

    The literature on interdependence of preferences is the exception to this individualistic approach (Kapteyn and van Herwaarden 1980; Kapteyn et al. 1978, 1997; Postlewaite 1998; and Sacerdote 2001).

  2. 2.

    The using of ad-hoc criteria to construct reference groups is frequent in the literature (Stutzer 2004; Luttmer 2005; Senik 2004, 2007; McBride 2001; Kingdon and Knight 2007; and Ferrer-i-Carbonell 2005).

  3. 3.

    The ownership of a car is positively associated to household income and to person’s education level. It is also related to age in an inverted-U way.

References

  • 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.

    Article  Google Scholar 

  • BIARE. (2014). Encuesta Nacional de Bienestar Autorreportado, Instituto Nacional de Estadística y Geografía, México, 2014.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • Brosnan, S. F., & de Waal, F. B. (2003). Monkeys reject unequal pay. Nature, 425, 297–299.

    Article  Google Scholar 

  • Carlsson, F., Gupta, G., & Johansson-Stenman, O. (2008). Keeping up with the vaishyas: Caste and relative standing. Oxford Economic Papers, 61(1), 52–73.

    Article  Google Scholar 

  • Clark, A., & Oswald, A. (1996). Satisfaction and comparison income. Journal of Public Economics, 61, 359–381.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • DeLeire, T., & Kalil, A. (2010). Does consumption buy happiness? Evidence from the United States. International Review of Economics, 57(2), 163–176.

    Article  Google Scholar 

  • Duesenberry, J. S. (1949). Income, savings, and the theory of consumer behaviour. Cambridge: Harvard University Press.

    Google Scholar 

  • Dumludag, D. (2015). Consumption and life satisfaction at different levels of economic development. International Review of Economics, 62(2), 163–182.

    Article  Google Scholar 

  • 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 

  • Felson, R., & Reed, M. (1986). Reference groups and self-appraisals of academic ability and performance. Social Psychology Quarterly, 49(2), 103–109.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Frank, R. (1985). Choosing the right pond. Human behavior and the quest for status. New York/Oxford: Oxford University Press.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • Goerke, L., & Pannenberg, M. (2015). Direct evidence for income comparisons and subjective well-being across reference groups. Economics Letters, 137, 95–101.

    Article  Google Scholar 

  • Gokdemir, O. (2015). Consumption, savings and life satisfaction: The Turkish case. International Review of Economics, 62(2), 183–196.

    Article  Google Scholar 

  • Hirsch, F. (1976). Social limits to growth. Cambridge: Harvard University Press.

    Book  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Hyman, H. H. (1960). Reflections on reference groups. The Public Opinion Quarterly, 24(3), 383–396.

    Article  Google Scholar 

  • Johansson-Stenman, O., & Martinsson, P. (2006). Honestly, why are you driving a BMW? Journal of Economic Behavior and Organization, 60, 129–146.

    Article  Google Scholar 

  • Kapteyn, A., & van Herwaarden, F. G. (1980). Interdependent welfare functions and optimal income distribution. Journal of Public Economics, 14, 375–397.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Luttmer, E. F. (2005). Neighbors as negatives: Relative earnings and well-being. The Quarterly Journal of Economics, 120(3), 963–1002.

    Google Scholar 

  • Marmot, M. (2004). Status syndrome. London: Bloomsbury.

    Book  Google Scholar 

  • Mazur, A., & Lamb, T. A. (1980). Testosterone, status, and mood in human males. Hormones and Behavior, 14(3), 236–246.

    Article  Google Scholar 

  • McBride, M. (2001). Relative-income effects on subjective well-being in the cross-section. Journal of Economic Behavior and Organization, 45, 251–278.

    Article  Google Scholar 

  • Merton, R. (1957). Social theory and social structure. Glencoe: Free Press of Glencoe.

    Google Scholar 

  • 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 

  • Moldovanu, B., Sela, A., & Shi, X. (2007). Contests for status. Journal of Political Economy, 115, 338–363.

    Article  Google Scholar 

  • Noll, H. H., & Weick, S. (2015). Consumption expenditures and subjective well-being: Empirical evidence from Germany. International Review of Economics, 62(2), 101–119.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Parducci, A. (1968). The relativism of absolute judgments. Scientific American, 219, 84–90.

    Article  Google Scholar 

  • Parducci, A. (1995). Happiness, pleasure, and judgment: The contextual theory and its applications. Hillsdale: Lawrence Erlbaum.

    Google Scholar 

  • Postlewaite, A. (1998). The social basis of interdependent preferences. European Economic Review, 42, 779–800.

    Article  Google Scholar 

  • Runciman, W. G. (1966). Relative deprivation and social justice: A study of attitudes to social inequality in twentieth-century England. London: Routledge.

    Google Scholar 

  • Sacerdote, B. (2001). Peer effects with random assignment: Results for dartmouth roommates. The Quarterly Journal of Economics, 116(2), 681–704.

    Article  Google Scholar 

  • Samuelson, L. (2004). Information-based relative consumption effects. Econometrica, 72, 93–118.

    Article  Google Scholar 

  • Schor, J. (1998). The overspent American: Upscaling, downshifting and the new consumer. New York: Basic Books.

    Google Scholar 

  • Schor, J. (1999). The new politics of consumption: Why Americans want so much more than they need, Boston Review, Summer.

    Google Scholar 

  • Schor, J. (2002). Understanding the new consumerism: Inequality, emulation and the erosion of well being. Tijdschrift voor Sociologie, 23(1), 10–20.

    Google Scholar 

  • Senik, C. (2004). When information dominates comparison: Learning from Russian subjective panel data. Journal of Public Economics, 88(9–10), 2099–2123.

    Article  Google Scholar 

  • Senik, C. (2007). Income comparisons. Which income gaps matter most to people? Working paper 2007-19. Paris School of Economics.

    Google Scholar 

  • Senik, C. (2009). Direct evidence on income comparisons and their welfare effects. Journal of Economic Behavior and Organization, 72(1), 408–424.

    Article  Google Scholar 

  • Stutzer, A. (2004). The role of income aspirations in individual happiness. Journal of Economic Behavior & Organization, 54, 89–109.

    Article  Google Scholar 

  • Suls, J., & Wills, T. A. (1991). Social comparison: Contemporary theory and research. Hillsdale: Lawrence Erlbaum Associates, Inc., Publishers.

    Google Scholar 

  • van Praag, B. M. S., & Ferrer-i-Carbonell, A. (2004). Happiness quantified: A satisfaction calculus approach. Oxford, UK: Oxford University Press.

    Book  Google Scholar 

  • Veblen, T. (1899). The theory of the leisure class, Reprinted, Modern Library, New York, 1934.

    Google Scholar 

  • Veenhoven, R. (1991). Is happiness relative? Social Indicators Research, 24, 1–34.

    Article  Google Scholar 

  • Weber, M. (1922). Wirtschaft und Gesellschaft, 1978 English edition as economy and society, Berkeley: University of California Press.

    Google Scholar 

  • Wilkinson, R., & Pickett, K. (2011). The spirit level: Why greater equality makes societies stronger. New York: Bloomsbury Press.

    Google Scholar 

  • Winkelmann, R. (2012). Conspicuous consumption and satisfaction. Journal of Economic Psychology, 33, 183–191.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Editor information

Editors and Affiliations

Appendix

Appendix

Table 7.A1 Principal component analysis

Rights and permissions

Reprints and permissions

Copyright information

© 2019 Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Rojas, M. (2019). Affluence: More Relative Than Absolute. In: Brulé, G., Suter, C. (eds) Wealth(s) and Subjective Well-Being. Social Indicators Research Series, vol 76. Springer, Cham. https://doi.org/10.1007/978-3-030-05535-6_7

Download citation

  • DOI: https://doi.org/10.1007/978-3-030-05535-6_7

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-030-05534-9

  • Online ISBN: 978-3-030-05535-6

  • eBook Packages: Social SciencesSocial Sciences (R0)

Publish with us

Policies and ethics