What do happiness and health satisfaction data tell us about relative risk aversion?
Abstract: In this paper we provide estimates of the coefficient of relative risk aversion using information on self-reports of subjective personal well-being from the 2006 Gallup World Poll. We expand the existing literature on the use of happiness data to analyze economic issues by considering the implications of allowing for health state dependence in the utility function. Our estimates of relative risk aversion using pooled data from various country groupings are smaller than one, suggesting less concavity than log utility. We also find that controlling for health dependence generally reduces these estimates. Our results also suggest that the marginal utility of income increases when health deteriorates.
File(s): File format is application/pdf http://research.stlouisfed.org/wp/2011/2011-039.pdf
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2011