Adaptation and loss aversion in the relationship between GDP and subjective well-being

Matti Hovi; Jani Petri Laamanen

doi:10.1515/bejeap-2020-0204

Adaptation and loss aversion in the relationship between GDP and subjective well-being

Matti Hovi, Jani Petri Laamanen

Kauppatieteet

Tutkimustuotos: Artikkeli › Tieteellinen › vertaisarvioitu

3 Sitaatiot (Scopus)

22 Lataukset (Pure)

Abstrakti

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 crosscountry 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 longrun 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 longrun relationship between economic growth and well-being.

Alkuperäiskieli	Englanti
Sivut	863–895
Julkaisu	B.E. Journal of Economic Analysis and Policy
Vuosikerta	21
Numero	3
DOI - pysyväislinkit	https://doi.org/10.1515/bejeap-2020-0204
Tila	Julkaistu - 2021
OKM-julkaisutyyppi	A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä

Rahoitus

We would like to thank Petteri Juvonen, Arto Luoma, Tuomas Malinen, Elias Oikarinen, Jari Vainiomäki, and the participants of the Nordic Conference on Behavioral and Experimental Economics in Tampere and the HEIRS conference in Rome and seminar participants in Helsinki, Jyväskylä, Tampere and Turku for helpful comments and discussions. Financial support from the Finnish Cultural Foundation (grant number 00170305) is gratefully acknowledged.

Julkaisufoorumi-taso

Jufo-taso 1

!!ASJC Scopus subject areas

Economics and Econometrics
Economics, Econometrics and Finance (miscellaneous)

YK:n kestävän kehityksen tavoitteet

Tämä tuotos edistää seuraavia kestävän kehityksen tavoitteita:

Pääsy asiakirjaan

10.1515/bejeap-2020-0204

Adaptation and loss aversion in the relationship
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Siteeraa tätä

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title = "Adaptation and loss aversion in the relationship between GDP and subjective well-being",

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 crosscountry 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 longrun 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 longrun relationship between economic growth and well-being.",

keywords = "Adaptation, GDP, Life satisfaction, Loss aversion, Subjective well-being",

author = "Matti Hovi and Laamanen, {Jani Petri}",

note = "Funding Information: We would like to thank Petteri Juvonen, Arto Luoma, Tuomas Malinen, Elias Oikarinen, Jari Vainiom{\"a}ki, and the participants of the Nordic Conference on Behavioral and Experimental Economics in Tampere and the HEIRS conference in Rome and seminar participants in Helsinki, Jyv{\"a}skyl{\"a}, Tampere and Turku for helpful comments and discussions. Financial support from the Finnish Cultural Foundation (grant number 00170305) is gratefully acknowledged. Publisher Copyright: {\textcopyright} 2021 De Gruyter. All rights reserved.",

year = "2021",

doi = "10.1515/bejeap-2020-0204",

language = "English",

volume = "21",

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TY - JOUR

T1 - Adaptation and loss aversion in the relationship between GDP and subjective well-being

AU - Hovi, Matti

AU - Laamanen, Jani Petri

N1 - Funding Information: We would like to thank Petteri Juvonen, Arto Luoma, Tuomas Malinen, Elias Oikarinen, Jari Vainiomäki, and the participants of the Nordic Conference on Behavioral and Experimental Economics in Tampere and the HEIRS conference in Rome and seminar participants in Helsinki, Jyväskylä, Tampere and Turku for helpful comments and discussions. Financial support from the Finnish Cultural Foundation (grant number 00170305) is gratefully acknowledged. Publisher Copyright: © 2021 De Gruyter. All rights reserved.

PY - 2021

Y1 - 2021

N2 - 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 crosscountry 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 longrun 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 longrun relationship between economic growth and well-being.

AB - 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 crosscountry 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 longrun 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 longrun relationship between economic growth and well-being.

KW - Adaptation

KW - GDP

KW - Life satisfaction

KW - Loss aversion

KW - Subjective well-being

U2 - 10.1515/bejeap-2020-0204

DO - 10.1515/bejeap-2020-0204

M3 - Article

AN - SCOPUS:85102636187

SN - 1935-1682

VL - 21

SP - 863

EP - 895

JO - B.E. Journal of Economic Analysis and Policy

JF - B.E. Journal of Economic Analysis and Policy

IS - 3

ER -

Adaptation and loss aversion in the relationship between GDP and subjective well-being

Abstrakti

Rahoitus

Julkaisufoorumi-taso

!!ASJC Scopus subject areas

YK:n kestävän kehityksen tavoitteet

Pääsy asiakirjaan

Sormenjälki

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