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- Title
Adaptation and Loss Aversion in the Relationship Between GDP and Subjective Well-Being.
- Authors
Hovi, Matti; Laamanen, Jani-Petri
- Abstract
We examine the roles of macro-level adaptation — including social comparison effects becoming more important over time — and macroeconomic loss aversion in the time-series relationship between national income and subjective well-being. Models allowing for these phenomena are applied to cross-country panel data. We find evidence for macroeconomic loss aversion that becomes more important over time: the effects of economic growth become small and statistically insignificant in the long run, whereas the effects of contractions are large and long-lasting. The results are consistent with the Easterlin paradox and point to it being explained by macro-level adaptation to economic growth. Our results highlight the importance of allowing for both dynamics to distinguish long-run from short-run effects and asymmetries to recognize the important effects of contractions. Failing to do the former leads to a misleading impression of the long-run relationship between economic growth and well-being.
- Subjects
SUBJECTIVE well-being (Psychology); LOSS aversion; SOCIAL comparison; GROSS domestic product; LIFE satisfaction
- Publication
B.E. Journal of Economic Analysis & Policy, 2021, Vol 21, Issue 3, p863
- ISSN
2194-6108
- Publication type
Article
- DOI
10.1515/bejeap-2020-0204