Does the risk of poverty reduce happiness?

TY - JOUR

T1 - Does the risk of poverty reduce happiness?

AU - Caria, Stefano A.

AU - Falco, Paolo

PY - 2018/10/1

Y1 - 2018/10/1

N2 - We investigate the unexplored link between the risk of poverty and happiness in the context of a developing country. Using unique longitudinal data, we estimate workers’ vulnerability to income poverty and find a strong negative relationship between vulnerability and life satisfaction, over and above the positive income effect commonly documented in the literature. The result is robust and cannot be reduced to the effect of two-sided uncertainty. A matched behavioral experiment shows that respondents are significantly loss averse. We conclude that downside risk is an important determinant of happiness and of economic decisions under uncertainty. Policies that mitigate downward risk may thus have direct impacts on both well-being and efficiency.

AB - We investigate the unexplored link between the risk of poverty and happiness in the context of a developing country. Using unique longitudinal data, we estimate workers’ vulnerability to income poverty and find a strong negative relationship between vulnerability and life satisfaction, over and above the positive income effect commonly documented in the literature. The result is robust and cannot be reduced to the effect of two-sided uncertainty. A matched behavioral experiment shows that respondents are significantly loss averse. We conclude that downside risk is an important determinant of happiness and of economic decisions under uncertainty. Policies that mitigate downward risk may thus have direct impacts on both well-being and efficiency.

UR - http://www.mendeley.com/research/risk-poverty-reduce-happiness

U2 - 10.1086/697556

DO - 10.1086/697556

M3 - Journal article

SN - 0013-0079

VL - 67

SP - 1

EP - 28

JO - Economic Development and Cultural Change

JF - Economic Development and Cultural Change

IS - 1

ER -