Discussion Paper No. 1022

HOW CONSCIEOUS ARE YOU
OF OTHERS?
FURTHER EVIDENCE
ON RELATIVE INCOME AND HAPPINESSSun youn Lee
Fumio Ohtake

March 2018

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

How Conscious Are You of Others?
Further Evidence on Relative Income and Happiness†
Sun Youn Lee1, Fumio Ohtake2

Extant research has found that an individual’s happiness is relative with respect to income, suggestingthat it rises with own income and falls as the income of a reference group increases. Some recent studies
emphasize that the effect of relative income is mediated by the extent to which people compare
themselves with others (hereinafter, “relative consciousness”). Using the survey data of representative
sample of Japan and the U.S., this paper extends the existing literature by providing a statistical evidence
that underlines the importance of the intensity of relative consciousness in association with theperception of reference-group income in determining an individual’s happiness and his/her decision inline with the maximization of the utility. First, we find people who are highly conscious of others’ living
standards are unhappier in Japan but happier in the U.S. This opposite effect between the two countries
is also found to exist when the same estimation is conducted with panel data. Second, the positive
relationship between relative consciousness and happiness found in the U.S. results from the perceptionof reference-group income: highly conscious people compare downward in the U.S. Lastly, we further
examine the extent to which the integrated effect of relative consciousness and reference-group income
is related to an individual’s decision that could affect the degree of happiness. We discuss how ourresults can drive a wedge between choice behavior and happiness maximization and thus between
happiness and decision utility.

Keywords: Happiness; relative income; relative consciousness; utility
JEL Classification: D6, I31, J0†This study is supported by a Grant-in-Aid for Scientific Research A [No. 26245041], provided by the Japan
Society for the Promotion of Science to both authors, and the Joint Usage/Research Center provided by theInstitute of Social and Economic Research at Osaka University to Fumio Ohtake. We are grateful for
constructive comments and suggestions from the participants at the International Conference on “Work andHappiness,” which was held from August 30 to September 1, 2017, in Seoul, South Korea. The authors are
responsible for any errors in this article.
1

Corresponding Author: Faculty of International Studies, Meiji Gakuin University, 1518 Kamikurata-cho
Totsuka-ku, Yokohama, Kanagawa 244-8539, Japan. Tel: 81-45-863-2241; E-mail: sylee@k.meijigakuin.ac.jp
2
Institute of Social and Economic Research, Osaka University, 6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan.
E-mail: ohtake@iser.osaka-u.ac.jp

1. Introduction
The “Easterlin paradox” (Easterlin, 1974) of substantial real income growth and roughly
constant happiness level has been widely researched and discussed by economists. Extant research
has attempted to solve this puzzle by considering individuals’ comparisons of own income withthat of others in a relevant reference group (social comparison) as well as with the individual’s
own past income (adaptation). More specifically, the theory is that the main reasons why
happiness does not change much, even with an increasing level of real income, are that
proportional increases for all incomes in an economy would leave average happiness unaffected,
and because people adapt to their changing income (Easterlin, 2001). In contrast, the bulk ofevidence in the literature at the micro-level suggests that, despite the Easterlin paradox, within asingle country, higher income significantly raises happiness. Clark et al. (2008) summarize how
the relationship between income and happiness differs at the individual and aggregate levels. At
the individual level, happiness increases steeply as income increases within a country at a given
point in time, which suggests that high income earners are more likely to be happier than low
income earners; this positive slope of the relationship is steep when the population of a country
is poor. However, as the average income of the country gets higher, the slope flattens, whichsuggests that over time, the marginal utility of income by country at the aggregate level will beclose to zero3.
Social comparison is one mechanism that explains nearly constant slope between income
and happiness at the aggregate level. The status benefit of high income does not have an impact
on country-level happiness because it is a zero-sum game. The gain in happiness that higherincome earners experience is accompanied by a corresponding loss in happiness of those in theircomparison group. In other words, the benefit from status is relative. Under the hypothesis thathappiness is a good proxy measure of “utility” (Hollander, 2001; Kahneman and Krueger, 2006)4,
many studies have attempted to investigate how the size of income in actual and relative terms
affects happiness. In addition to social comparison groups, some researchers have focused on how
income adaptation explains the Easterlin paradox. Di Tella et al. (2007) find that the effect of an
income increase after four years is reduced to 42% of the effect after one year. This suggests thatthe short-term effect of an income increase dissipates over time and that, in the long run, stablecharacteristics do not affect well-being. Some researchers have provided explicit evidence for asignificant relationship between individuals’ required income levels and own past income by3

Even in high-income countries, where the slope between income and happiness is close to zero, income
and happiness are still positively correlated at a given time at the individual level (Clark et al., 2008).
4
A growing number of economists believe that happiness data obtained from self-reported survey
questionnaires contain valuable information. Despite some concerns about measurement error andreference bias, it is believed that happiness data can enhance our understanding of individual behavior,and that happiness scores provide information about utility.

2

using panel data, such as the German Socio-Economic Panel (SOEP) (Bartolini et al., 2013;
Vendrik, 2013) and the British Household Panel Survey (BHPS) (Clark, 1999). In addition tousing own past income as a reference point, “aspirations” are used in another study as anindividual-level reference point. If aspirations rise in tandem with actual income, then the effectof income on happiness will be constant. Stutzer (2004) finds that, in Switzerland, individuals’
income aspirations are increased by average community income, and that the increased aspirations
negatively affect life satisfaction. McBride (2010) investigates the effect of aspirations by using
the matching pennies game against various computer opponents. The author creates variations inaspirations by manipulating the probability distributions of heads and tails used by the computerand finds that, holding the payoff constant, as aspiration becomes higher, satisfaction becomes
lower.
For a more accurate estimation of the regression of happiness on relative income, somerecent papers (Clark and Senik, 2010; Goerke and Pannenberg, 2015) emphasize the importanceof understanding the extent to which individuals compare themselves to others: happiness falls
with the intensity of income comparisons. Mayraz et al. (2009) also report a negative averagecoefficient on the comparison intensity, using the sample of the 2008 pre-test module of the SOEP.
Using an original web-based survey in Japan, Yamada and Sato (2013) conduct hypothetical
discrete choice experiments in which they changed the definition of reference persons inhypothetical situation choice tasks (e.g., alternative combinations of hypothetical monthly income
amounts provided to subjects, both for themselves and certain reference persons). Yamada andSato (2013) note that a difference in intensity of relative utility is found depending on the degreeof respondents’ comparison: as expected, more jealous people experience a stronger negative
effect of reference income on utility. With the same internet survey data, Clark et al. (2013) alsofind that increased comparison intensity leads to a decrease of satisfaction with income.
In addition to the comparison intensity, some recent studies imply that the features ofsubjects’ reference groups are also important in the study of happiness and income comparisons(Hauret and Williams, 2017). More specifically, the relative utility can differ by comparisongroups that determine “who compares to whom”. Clark and Senik (2010) find that people who
compare themselves to colleagues are happier than those who use other reference groups. In
Mayraz et al. (2009), compared with other benchmarks, the effect size of relative income is foundto be large when the comparison group is colleagues with the same profession. Yamada and Sato(2013) note that, in Japan5, those who compare themselves with neighbors have the strongest
intensity of relative utility. Other comparison groups, such as family, friends, and colleagues, areconsistently found to have a significant negative effect, albeit not as intense, for a given reference
5

An analysis of income comparisons based on Japanese data can also be found in de la Garza et al.
(2012) and Oshio and Urakawa (2014).

3

income. Senik (2009) summarizes the effects of heterogeneous comparison groups in different
counties. For example, in countries where the degree of income mobility is high, such as the U.S.,
the comparison with a high income reference group is positive, while in countries where income
mobility and uncertainty are low, such as Western Europe, the opposite result is observed.
Godechot and Senik (2015) also provide a compelling evidence of the importance of defining thecomparison group; the effect of reference income differs whether the reference group is either
other workers in the same firm or similar workers in the region.
The wide range of these happiness papers assume that happiness scores provide valid
information about utility. However, it has been argued that happiness may not be same as utility.
Kimball and Willis (2006) argue that individuals’ choices are not expected to maximize theirhappiness, which suggests there is more to life than happiness. Some argue that individuals are
not good at foreseeing how much utility they will derive from future consumption (Loewensteinand Adler 1995; Frey and Stutzer 2014). By empirically testing an individual’s commuting
decisions, which involve trade-offs between extrinsic rewards (e.g., a more exclusive housing forthe same price, or a higher salary) and intrinsic needs (e.g., time spent with family or friends),
Frey and Stutzer (2014) find that people underestimate their utility with regard to intrinsic needs.
Analyzing an individual’s decisions in terms of both extrinsic and intrinsic needs helps us tounderstand some paradoxical observations of people who are not fully compensated for thedecision which is expected to maximize their utility. Along this line, we should also allow for thefact that individuals might systematically mispredict utility (see Kahneman and Thaler, 2006 formore details) in line with the maximization of happiness.
Using a single dataset derived from the representative sample of Japan and the U.S., weattempt to address all these aspects of the effect of social comparison and aspiration, the effect ofcomparison intensity and comparison direction, and the relationship between happiness and utility.
First, we examine the extent to which happiness rises with own income but falls with the incomeof a reference group, using three different measures for relative income, which involves bothsocial comparison and aspiration theories. In the survey, respondents were asked to report theincome of a comparison group and their own aspirational income. In addition, comparison withothers’ living standards was reported on a 1-5 scale, ranging from much lower to much higher.
These three candidates for relative income within the same dataset allow us to more accurately
estimate whether the utility is relative with respect to income. Furthermore, we also calculate thecell-mean measures of relative income for a comparison, using the same covariates that werecollated by the same survey conducted in the same year in both Japan and the U.S. This enables
us to understand the country-specific difference in relative utility in more depth.
Secondly, we focus on the extent to which individuals are conscious of others’ living
standards (hereafter, “relative consciousness”) while considering the respondent’s choice of4comparison group. This is our fundamental interest in this work. The most related literature of
our work is Goerke and Pannenberg (2015). They also examine the effect of income comparisons,with a particular focus on the comparison intensity and comparison direction. Consistent withother related literature, they find that the comparison intensity and higher-income reference groupare both negatively correlated with subjective well-being; however, comparison intensity andperceived relative income do not interact. We attempt to empirically test the hypothesis that how
the intensity of relative consciousness affects happiness depends on the income level of referencegroup. More specifically, we hypothesize that relative consciousness affects happiness differently
between countries depending on whether most comparisons are upward or downward (Clark andSenik 2010). Upward comparisons would mean people intensively compare their income withothers in higher-income reference groups. In this case, greater relative consciousness inassociation with upward comparisons will lead to a lowering of happiness. On the other hand, if
people intensively compare themselves with lower-income reference groups, this comparison
could positively affect happiness. Thirdly, after estimating the relationship between relative
income and happiness, we examine whether people correctly predict the possible impact ofrelative income on an individual’s decision which could affect their future happiness. We showthat the decision could differ according to the degree of relative consciousness in combination
with their perception of their relative income. We then discuss the link between happiness andindividual decisions that are expected to maximize utility.
Accordingly, there are three main findings in our paper. First, our overall estimation results
on income are consistent with previous studies. A regression of happiness on absolute income
produces a positive estimated coefficient, as found in a wide range of the related microdata-based
literature. As for the effect of relative income, we find that higher income in reference groups is
associated with lower levels of self-reported happiness. This suggests that if others are better off,
people feel less happy. When we use the level of own income needed to achieve a self-set levelof welfare as a proxy for an individual’s aspirations, we also find that, when aspirations are higher,
people are less happy. The negative coefficient is also statistically significant for self-declared
relative status in terms of living standard. These results suggest social comparison and aspiration
both explain the effect of relative income. We obtained reasonably identical results from threedifferent measures of relative income, which supports the stability of results based on perceived
reference income. This is in line with Clark et al. (2017) who argue that the results obtained fromhappiness regressions with different measures of relative income are similar to those fromhypothetical-choice regressions; this indicates that experienced and decision utility concur. Itemphasizes the reliability of happiness regressions which are often criticized by the reverse
causality between relative income and happiness.
Secondly, relative consciousness itself has a significant, albeit contradictory, effect on5happiness in Japan and the U.S. It is negatively correlated with happiness in Japan, but positively
correlated in the U.S. Contrary to the findings of previous studies, indicating that those who saythat they compare more with others suffer more as relevant others’ incomes rise, people in the
U.S. feel happier if they are more conscious of others’ living standards. It is interesting to explore
why there exists an asymmetric effect of relative consciousness in association with relative
income. Using an interaction term between relative consciousness and relative income, we predictthat this difference could result from differences in the groups they are conscious of. We find thatthose who are highly conscious of others’ living standards in the U.S. have a tendency to choose
a low-income reference group. A statistically significant interactive effect is found for all threedifferent measures of relative income. The results remain the same even after controlling forreference group choice. This implies that a relatively low-income reference group can beendogenously and actively chosen by people with a high relative consciousness. These downward
comparisons through the choice of low-income reference groups enable highly conscious people
in the U.S. to conceive themselves as having a relatively high status, which in turn is likely tomake them feel happier.
Lastly, using a hypothetical question, we find that those who compare upward, which makes
them unhappier, tend to prefer a living environment where they would be surrounded by a higherincome reference group. This means people could possibly make a choice that could make themless happy. This tendency is pronounced only among less conscious people. One possible
interpretation is that less conscious people’s preferences are not maximizing their happiness,
which suggests that happiness might not act in the same way as “utility”. This choice can also be
explained by the possibility that people often mispredict their utility; then, their future expectation
is not maximized to increase the degree of happiness. We then focus on highly conscious people
who make the opposite choice by choosing lower-income reference neighbors. Why do highly
conscious people, in particular those who currently perceive that their reference group contains
higher-income earners, choose lower-income neighbors? This result is statistically significant inboth countries, even when we use the sample restricted to those who chose neighborhood as thereference group. We discuss that being currently conscious of others might help them to“consciously” conceive the possibility that the relative income greatly matters for their happiness.
Relative consciousness might then lead to make decisions that maximize their happiness.
Our overall results extend the existing literature by providing a statistical evidence that
underlines the importance of the intensity of relative consciousness in association with theperception of reference-group income in determining an individual’s happiness and his/herdecision. While a limited number of studies examine how the comparison intensity mediateshappiness, this work intends to make a contribution to better understand the effect of relative
consciousness, which can be asymmetric by country, and the mechanism behind how it interacts
6

with relative income in determining happiness and individual choice behavior, with aconsideration of features of reference group. In order to obtain more reliable results, using panel
data we also apply a fixed-effect model to examine the effect of relative consciousness and checkthe omitted variables bias using the method of Oster (2016). The remainder of this paper is
structured as follows. Section 2 describes the data used for our analyses and empirical
specifications. Estimation results are reported in Section 3. We then discuss the implications of
the results and conclude in Section 4.

2. Data and Method
Our data source is the Osaka University Global CEO (GCEO) survey conducted in 2006 in
Japan and the U.S. The GCOE survey started collecting data in 2004 from a representative groupof Japanese and American households about socioeconomic status and a broad range of selfreported behaviors. Using the drop-off/pick-up method in February 2003, the first year of thesurvey covered a random sample drawn from 6,000 individuals selected by a double-stratified
random-sampling method. It has been conducted annually since then, and new individuals wereadded to the following surveys using the same method. In the U.S., a panel survey has also been
conducted annually, starting in January and February of 2005, using a mailing method with 4,979
individuals in the first group6. In this study, for the panel data analysis, we use the 2004 to 2006
data for Japan and the 2005 to 2006 data for the U.S. As the measures of relative income inaddition to other control variables are included in survey year 2006 in both countries, thesubsequent analyses are based on cross-section data of the 2006 survey. The survey data of 2006
are for 3,763 individuals in Japan and 3,120 individuals in the U.S. The control of demographic
and labor-related variables, such as years of marriage, years of schooling, and type of employment
reduced the sample sizes to 2,902 and 2,637 in Japan and the U.S., respectively.
The GCOE data provide us with a measure of happiness, a measure of income, and a rich
set of control variables that the literature has identified as the main determinants of happiness, inparticular, relative income, relative consciousness, and behavioral and labor-related variables.
First, the data permit a direct estimate of the income of comparison groups and reference values
for one’s own aspirations. These questions enable us to construct three different measures ofrelative income, which are all used for comparison in the analyses in this study. Second, while
identifying reference groups is often empirically difficult, this survey explicitly asked individuals
about their reference groups by providing a list of options so that they could state to whom they
compare themselves. Third, the survey has a question about relative consciousness, which is themain focus of our study. This question allows us to test our hypothesis that social comparison
6

New individuals were added in the 2004, 2006, and 2009 surveys in Japan, and in the 2007, 2008, and2009 surveys in the United States, using the same method as in the first survey year.

7effects on happiness can differ according to how much people are conscious of others. Fourth, it
has a question about individual choices with regard to happiness, which allows us to discuss therelationship between happiness and utility. Finally, the survey includes a wide range ofdemographic and labor-related variables that have been reported to significantly affect happiness.
Furthermore, these covariates were collated by the same survey conducted in the same year inJapan and the U.S.

2.1 Happiness and Income in Absolute and Relative Terms
This paper first focuses on the extent to which the degree of happiness is affected by one’s
own income, a widely researched topic in the field of happiness studies. Degree of happiness ismeasured on a scale of 1 to 10 by the following question: “Overall, to what degree are you
currently feeling happy? Using a scale from 0-10 where ‘10’ is ‘very happy’ and ‘0’ is ‘very
unhappy,’ how do you rate your current level of happiness?” As shown in Table 1 and 2, overall,American respondents are happier than Japanese respondents. About 55% of American
respondents rated their current level of happiness at 8 or more, whereas the proportion of
respondents in Japan who rated their happiness at 8 or more is only 28%, about half of the level
for Americans. In both countries, those who rated their happiness as 4 or less, indicating overall
unhappiness, constitute about 12% of the sample.
We use the household income, which is measured by using annual earned household income
before taxes including bonuses received by any member of the household for 2005, as a proxy for
absolute income in the happiness regressions; a number of household is included in the model asa control variable. As for the question regarding an individual choice in (see Eq. (4) in Section 3),
it explicitly compares own income with others for a choice of living environment. Thus, we use
own annual income before taxes including bonuses7 as absolute income. Respondents report theirhousehold and own income using a list of 11 categories, where category 1 refers to an annual
figure of below $10,000 (1 million Japanese Yen (JPY) for the Japanese survey) and category 11
corresponds to an annual income of over $200,000 (2 million JPY). Income is calculated as the
mid-point of each of the nine intermediate categories; values of 5 and 25 million JPY are assigned
to two extreme categories. To see the correlation between happiness and absolute income, we firstcategorize the household income data into three groups using the 25% and 75% percentile
thresholds as separators. The calculated the percentage of each scale of happiness by income
group is shown in Table 2. This indicates the positive relationship between happiness and income
in both countries. The high-income group rates their degree of happiness as higher than the low-7

We find that the overall results using different types of income data do not differ significantly.
However, the explanatory power of each model is stronger when household income is used for happinessequation (Eqs. (1) to (3)) and own income for individual choice equation (Eq. (4)).

8and middle-income groups. This is clearly observed from level 7 in both countries. More people
in higher income group give an answer of scale of 7 and more.
For relative income, we constructed three variables, using self-declared reference-group
income. First, we use the question: “How does your standard of living compare with people
around you?” measured on a 5-point scale (hereafter, living standard comparison). More than halfof people in Japan (57.3%) and the U.S. (60.4%) think that their own standard of living is about
the same as other people around them. There are more Americans (12.2%) than Japanese (8.0%)
who think that the living standards of other people are at least somewhat lower than their own,
whereas more Japanese (34.7%) than Americans (27.4%) think the living standards of otherpeople are comparatively higher. Second, the survey asks respondents to compare their own
household income with the household income of other people: “How much household income iscommon for people around you?” (hereafter, social comparison income). This is measured using
12 income categories ranging from less than $10,000 to more than $200,000. Same as for one’s
own household income, reference income is calculated as the mid-point of each of theintermediate categories. Last, we also consider aspirational income using the following question:“How much income do you think is natural for your household?” (hereafter aspirationcomparison income). This is also measured by the mid-point of each of the intermediate categories.
As social comparison income and aspirational comparison income are measured in the same units
as own household income, we can directly compare the estimated coefficients on income in bothabsolute and relative terms. Table 1 reports the mean value of each measure of relative income inlogarithmic form.
These three types of relative income measure are based on the perceptions of respondents
about others’ living standard, other’s reference income, and one’s aspirational income. It isarguably of use to have information on what individuals perceive others earn. To empirically test
the effect of income in relative terms, some previous studies (Ferrer-i-Carbonell, 2005; Knightand Song, 2009) compute or estimate reference group income. Clark and Oswald (1996) estimate
wage equations, with controls for individual characteristics, and then compute the predicted
income of the reference group. They compute averages within groups defined by several
individual characteristics matched in from an external source. Other studies use computations of
average income by state (Blanchflower and Oswald, 2004), by local area (Luttmer, 2005), by
family and friends (Senik, 2009), by colleagues (Brown et al., 2008), and by neighbors (Luttmer,
2005; Knight et al., 2009). Following these previous studies, to provide a comparison for results
based on respondents’ perceptions, we calculate the expected mean income of comparable others
predicted from a standard form of the Mincer earnings equation, conditional on age dummies,
gender, education categories (and labor-related variables for a comparison).
Self-declared comparison income can largely depend on the particular comparison group that9

is endogenously chosen for comparison. Our data include information about which comparisongroup respondents have in their mind when they answered the question about their relative status
in terms of living standard. Without this comparison group information, we can only obtain an
average effect of relative income estimated over the whole sample, with the reference group being
considered to be same for all respondents. The most frequent reference group in both countries isneighbors (49.74% in Japan and 51.04% in the U.S.)8. The distributions of comparison groups arevery similar in Japan and the U.S. (see Table B for details). Approximately 10% compare
themselves with friends, colleagues, and family members. Additionally, 12% and 18% of people
in Japan and the U.S., respectively, considered average people in their own country or the world
as their comparison group. We also report the mean values of relative consciousness and relative𝑗𝑗income, which is calculated by ln( 𝑌𝑅𝑖 /𝑌𝑖 ) ; 𝑌𝑅𝑖 is reference-group income and 𝑌𝑖 is own
income. In both countries, comparison group who have the strongest intensity of relative utility
is friends and acquaintances. To distinguish the effect of a choice of comparison groups, we use
this information in our estimation either by including the group as a dummy variable (representing
12 comparison groups) in the model or by restricting the sample into a certain comparison group.

2.2 Relative Consciousness
Our main focus is the effect of people’s relative consciousness. It has been found in previous
research that those who say they compare more tend to feel less happy (Mayraz et al., 2009; Clarkand Senik, 2010; Coerke and Pannenberg, 2015). This indicates that the intensity of income
comparison on its own negatively affects happiness. Clark et al. (2013) report that it mediates theeffect of relative income on happiness. People feel less happy if their income is a relatively low
compared with their reference group and this negative effect is aggravated for those who state
they compare their incomes more. We investigate the extent to which the relative consciousnessof other people’s standard of living affects happiness on its own and in association with relative
income. For this, we construct an variable named “relative consciousness” using the following
statement with agreement measured on a 5-point scale: “I am conscious of other people’s standardof living.”
Column 1 of Panel A in Table 3 shows the overall distribution of the intensity of relative
consciousness. For an easier comparison, we first recoded the “living standard comparison”
variable into three categories: (i) lower (sum of much lower and somewhat lower); (ii) same as
8

In Yamada and Sato (2013), who use a Japanese sample, the reference group chosen the most often isfriends (42%), followed by work colleagues (20%), while about 25% of respondents say they do not makesuch income comparisons. The difference might arise from the difference in the survey question. Yamada
and Sato (2013) ask for the comparison group in relation to “income”, whereas in our data the comparison
is in relation to “living standards” of people around respondents. In addition, the choice options ofperceived reference group differ between the surveys; in particular, we do not allow for the choice of notcomparing with others.

10mine; (iii) higher (sum of much higher and somewhat higher). While only 23.2% of Japanese
respondents give an answer of four or five on a 1-5 scale, about 60% of people in the U.S. do.
This shows that contradictory trends exist in Japan and the U.S.: overall, Japanese people do notmuch care about other people’s living standards, while Americans care about the relative level ofother people’s living standards9. Column 2 of Table 3 indicates the mean values of respondents’
own household income sorted by the degree of relative consciousness of others’ living standards.
Columns 3 to 5 report the mean values of the relative income measures. As relative consciousness
increases, one’s own income and relative income increase in Japan. This suggests that those who
say they are more conscious of others’ living standards perceive that their reference group income
and their own aspirational income are higher than their own income. In other words, those whoare more conscious of others feel a large gap in income between their own and reference group.
This tendency is not clearly observed in the U.S.
The positive correlation between income in both absolute and relative terms and relative
consciousness in Japan is more explicitly observed in the Panel B of Table 3. It reports part of theresults of the regression of relative consciousness on absolute and relative income in addition todemographic and labor-related variables. In Japan, as mean values sorted by relative
consciousness indicate, we can observe the positive, statistically significant correlation between
income in both absolute and relative terms and relative consciousness. Those who report a larger
gap in social comparison income and aspirational comparison income are more likely to feel
conscious of others in Japan. It can be reversely explained in that more conscious people feel astronger intensity of relative utility.

2.3 Empirical Specifications
Under the hypothesis that happiness is a reliable proxy measure of utility, Clark et al. (2008)
explained how two types of relative or comparison income terms (social comparison andadaptation) affect utility using the individual utility function 𝑈𝑡 = 𝑈(𝑢1 (𝑌𝑡 ), 𝑢2 (𝑌𝑡 |𝑌𝑡∗ ), 𝑢3 (𝑇 −𝑙𝑡 , 𝑍1𝑡 )), where 𝑌𝑡 is the vector of incomes 𝑦𝑡 from t = 0 to t and 𝑢1 (.) can be thought of as
utility from consumption (u1′ > 0, u1′′ < 0). In a one-period model without savings, 𝑈1 (𝑌𝑡 ) =𝑢1 (𝑦𝑡 ) = 𝑢1 (𝑐𝑡 ) . Also, the difference 𝑇 − 𝑙𝑡 considers the influence of leisure (with 𝑙𝑡
indicating hours at work) and 𝑍1𝑡 denotes a vector of other socio-economic and demographic
9

Our data indicate that compared with respondents in the U.S., Japanese respondents are less consciousof others’ living standards. Comparatively, Clark et al. (2013) compare the comparison intensity between
Japanese and Europeans. The percentage of Japanese who do not compare their income with others (25%)
is notably lower than that of Europeans (36%). They note that the Japanese are more comparison
conscious than are Europeans. This result is not directly comparable with our results for Japan, for thefollowing two reasons. First, the surveys from which our data are derived do not allow for the choice of
not comparing with others which would mean that respondents do not have a comparison group. Second,
Clark et al. (2013) use a more direct question to measure the comparison intensity in relation to “income”:“How much are you concerned, anxious or envious about other people’s incomes?”11

variables. To empirically apply this utility function, the equation can be written as 𝑈𝑡 =𝛽1 ln(𝑦𝑡 ) + 𝛽2 ln(𝑦𝑡 /𝑦𝑡∗ ) + 𝑍𝑡′ 𝛾, where 𝑦𝑡∗ is the “reference group income” and the ratio 𝑦𝑡 /𝑦𝑡∗
is called “relative” income. The reference point can either be a comparison group, such as family,
neighborhood, region or country, or it can be own past income. When reference points are
determined externally, we can interpret 𝑢2 (𝑌𝑡 |𝑌𝑡∗ ), where u′2 > 0, u′′
2 < 0, as the “status return”
from income or the positional aspect of income. Based on related literature, we set up four
economic models to investigate the relation between happiness and income comparison. All
equations are estimated by using Ordinary Least Squares (OLS) for an easier comparison ofcoefficients. The results obtained from OLS do not differ markedly from those from otherestimation methods, such as ordered logit or ordered probit (for a comparison, see Table A10), as
found by Luttmer (2005) and Clark et al. (2017). We start from the baseline empirical
specification to investigate the determinants of happiness as follows:𝑗h𝑖 = 𝛼 + 𝛽𝑖 ln𝑌𝑖 + 𝛿𝑗 ln𝑌𝑅𝑖 + 𝑋𝑖′ 𝛾 + 𝜀𝑖 (1)In Eq. (1), h𝑖 is a measure of happiness reported by respondent 𝑖, and 𝑌𝑖 is respondent 𝑖’sannual household income. With the control of own household income (𝑌𝑖 ), we include the relative𝑗income 𝑌𝑅𝑖 11 which indicates income of reference group 𝑗 which is self-reported by respondent
𝑗𝑖. 𝑌𝑖 and 𝑌𝑅𝑖 (social comparison income and aspiration comparison income) are entered in log
form in the regression analysis. In Eq. (1) we focus on the size and directions of the coefficient𝛿, which reports the effects of relative income. Clark and Senik (2010) explain it can be either
positive or negative. People are less happy when the reference group does better. In contrast,
reference group income contains information about the individual’s own future prospects, which
produces the reverse effect. 𝑋𝑖 is a vector of control variables that contain demographic variables,
behavioral variables (e.g., health condition and degree of religious devotion) and labor-related
variables (e.g., employment type, unemployment experiences, etc.), which have been found to beimportant determinants for happiness in a wide range of related literature. Another important
control variable in our work is a dummy variable that indicates the reference group against which
10

Table A compares the results obtained by Ordered logit and OLS; we do not see a significant differenceby estimation methods. We also report the results by gender; overall results that particularly involve ourmain control variables are reasonably similar for men and women in our work. We only document theresults based on the whole sample for main estimations throughout the text.
𝑗11
We use other three measures as a proxy for the reference income of 𝑌𝑅𝑖 . First, we calculated therelative income using a standard from of the Mincer earnings equation to obtain a predicted wage.
Secondly, following the utility function introduced in Clark et al. (2008), we calculated the relative𝑗𝑗income as ln( 𝑌𝑅𝑖 /𝑌𝑖 ). Thirdly, for a more explicit comparison, we also estimated Eq. (1) with 𝑌𝑅𝑖 − 𝑌𝑖as the relative income, while controlling for one’s own income. As for the second and third measures,
positive values indicate that the respondent views others’ household income and aspirational income as
higher than their own. In other words, they have a higher-income reference group. We do not find any
significant difference between the effects of relative income measured by log or not. For a comparison𝑗with our main result, we report the result obtained when the relative income is measured by 𝑌𝑅𝑖 − 𝑌𝑖 in
Table C.

12

a respondent compares himself or herself: for example, neighborhood, friends, family members,colleagues, or average people (see Table B for details).
In addition to the effect of one’s own actual income and relative income, we consider theextent to which a respondent is conscious of others’ living standards as follows:𝑗h𝑖 = 𝛼 + 𝛽𝑖 ln𝑌𝑖 + 𝛿𝑗 ln𝑌𝑅𝑖 + 𝜑𝑖 𝑅. 𝐶𝑖 + 𝑋𝑖′ 𝛾 + 𝜀𝑖 (2)The term 𝑅. 𝐶𝑖 denotes the degree of relative consciousness measured on a five-point scale(5 = highest). This captures an effect that can be described as comparison intensity based on envy,
jealousy or self-enhancing motivation. To find the partial effect of relative consciousness, we firstincluded 𝑅. 𝐶𝑖 on its own, as in Eq. (2). As for relative consciousness, the answer was also
recorded in 2004 in Japan and in 2005 in both Japan and the U.S. We observe the change in
relative consciousness over time among some respondents, which possibly affects the change intheir happiness. Thus, we examine within-subject variability using a fixed effects model: h𝑖𝑡 =𝛼 + 𝛽log𝑌𝑖𝑡 + 𝜑𝑅. 𝐶𝑖𝑡 + 𝑋𝑖𝑡′ 𝛾 + 𝜀𝑖𝑡 . 𝑅. 𝐶𝑖𝑡 denotes changes of relative consciousness within
individuals, which we predict causes the individual’s happiness to be changed over time. In thisequation, time-invariant variables such as gender and educational attainment are excluded (seeTable 6 for results).
Our main focus is to examine whether relative consciousness affects happiness differently
according to a choice of reference income group. We thus include an interaction term for relative
income and relative consciousness; the effect of which can be found in the coefficient 𝜃 in Eq.
(3). If income comparisons are made downward among highly conscious people by comparing
with a low-income reference group, 𝜃 will be positive; by contrast, if income comparisons arerather upward, it will be negative. We hypothesize that in the U.S., the positive effect ofcomparison with a low income reference group would be strengthened among people who arehighly conscious of others; in this case, the coefficient 𝜃 takes a positive value (see Table 7 forresults).
h𝑖 = 𝛼 + 𝛽𝑖 ln𝑌𝑖 + 𝛿𝑗 ln𝑌𝑅𝐿𝐼𝑅𝐺+ 𝜑𝑖 𝑅. 𝐶𝑖𝐻 + 𝜃𝑖 (𝑌𝑅𝐿𝐼𝑅𝐺
× 𝑅. 𝐶𝑖𝐻 ) + 𝑋𝑖′ 𝛾 + 𝜀𝑖 (3)𝑖𝑖To investigate the interactive effect that occurs when highly conscious people compare
themselves with a low income reference group and to more explicitly interpret the result, instead𝑗of including the consecutive variables denoted by 𝑌𝑅𝑖 and 𝑅. 𝐶𝑖 in Eq. (2), we converted them𝑗into binary indicators. 𝑌𝑅𝐿𝐼𝑅𝐺
indicates others’ income is lower than one’s own (𝑌𝑅𝑖 ≤ 𝑌𝑖 ); as for𝑖
𝑅. 𝐶𝑖𝐻 , it equals 1 if respondents are highly conscious of others. Comparing 𝜑 and 𝜃, we cansee whether the effect of relative consciousness differs depending on the income level ofcomparison group12.

For a comparison, we estimate Eq. (2) with the same binary indicators, 𝑌𝑅𝐿𝐼𝑅𝐺
and 𝑅. 𝐶𝑖𝐻 , which are𝑖used for Eq. (3). The overall results are reasonably similar to the results obtained from ordinal variables in
Eq. (2).
12

13

To further examine the effect of relative consciousness, we set up a model (4) where thedependent variable, D𝑖 , is a hypothetical decision about where to live. For this, we use thefollowing question: “In which kind of town do you prefer to live: where the people are richer thanyou or the people are poorer than you? (Assume these two towns have the same degree of safety
and convenience).” The responses are grouped as an ordinal variable on a five-point scale inwhich 5 indicates that other people are much richer than oneself while 1 indicates that other people
are much poorer than oneself. Thus, a bigger answer indicates that respondents want to live witha higher-income reference group. We start with the Eq. (4) without the interaction term 𝜃. In thiscase, if 𝛿 is statistically significant and positive, it indicates that respondents with a higher
reference income group tend to prefer a town in which neighbors come from a higher-income
reference group. If we find that having a higher-income reference group makes people less happyin the estimation of Eq. (2), the positive coefficient of 𝛿 suggests that they might make a choice
which could make them less happy.
D𝑖 = 𝛼 + 𝛽𝑖 ln𝑌𝑖 + 𝛿𝑗 ln𝑌𝑅𝐻𝐼𝑅𝐺+ 𝜑𝑖 𝑅. 𝐶𝑖𝐻 + 𝜃𝑖 (𝑌𝑅𝐻𝐼𝑅𝐺
× 𝑅. 𝐶𝑖𝐻 ) + 𝑋𝑖′ 𝛾 + 𝜀𝑖 (4)𝑖𝑖
Our fundamental interest is the effect of degree of relative consciousness in association withrelative income. To more explicitly interpret the result, as we did in Eq. (3), we use binary
indicators 𝑌𝑅𝐻𝐼𝑅𝐺
and 𝑅. 𝐶𝑖𝐻 in the estimation of Eq. (4). 𝑌𝑅𝐻𝐼𝑅𝐺
indicates others’ income is𝑖𝑖𝑗higher than one’s own (𝑌𝑅𝑖 > 𝑌𝑖 ); as for 𝑅. 𝐶𝑖𝐻 , it equals 1 if respondents are highly conscious ofothers13. By using these two binary indicators, we can examine the interactive effect of relative
consciousness and relative income. We focus on the sign and direction of 𝜃 with the hypothesisthat a higher relative consciousness helps respondents “consciously” prefer a choice of a lowincome reference group, which in turn could make them happy. If it holds true, 𝜃 should be
negative and statistically significant.
3. Results
3.1 Effects of Income in Actual and Relative terms
We start from the basic estimation of Eq. (1) to investigate the effect of income on level ofhappiness, controlling for individual demographic and labor-related variables. Column 1 of Table
3 indicates that one’s own household income is significantly correlated with happiness, as foundin a wide range of previous studies14. As for other socio-economic variables, we have obtained

13

In Eq. (3), a binary indicator of lower-income reference group is used as a proxy for relative income,while in Eq. (4), a binary indicator of higher-income reference group is used. Despite some possible
confusions, we set up the models in this way to test our hypotheses; the effect of lower-income referencegroup in association with relative consciousness on an individual’s happiness; the paradoxical effect ofhigher-income reference group in association with relative consciousness on an individual’s choice.
14
For own income, we also use subjective measurement which indicates one’s own living standard
measured on an eleven-point scale (0 is lowest and 10 is highest). The results are overall same as those
for an objective measure of annual household income.

14

results that are highly consistent with those of previous studies (for a review, see Dolan et al.,2008; for the estimation results, see Table A). Household income in absolute term, is positively
correlated with happiness in both countries, everything else being equal. To briefly summarize
the results of social-economic variables, in Japan, women, married people, non-participants in thelabor force, those with a child, and persons with higher educational attainment, fewer family
members, good health, and higher religious devotion are happier. In the U.S., people who areyounger or older (i.e., not in the middle; the age effect has a U-shape15), married, not labor force
participants, have fewer family members, have good health and higher religious devotion arehappier. In both countries, past experience of unemployment is negatively and statisticallysignificantly correlated with happiness after controlling for labor-related variables. A wide rangeof previous research has identified clear, positive relationships of happiness with income,marriage, job status, health, and religion (Kahneman et al. 1999; Layard, 2005). The implicit
values of employment and marriage in Australia are found to be worth about twice mean yearly
income (Carroll et al., 2009). Having children and additional education are found to only slightly
affect utility since these have strong choice elements (Clark et al., 2008). Overall, our results are
consistent with previous results for socio-economic and labor-related factors.
Columns (2) to (4) of Table 3 report the effect of relative income, which was measured using
three variables, while controlling for own income. All three measures of relative income arenegatively and statistically significantly correlated with happiness. One exception is aspirationcomparison income in the U.S. which is not significant. This might be because the variation inthis measure is very small in the U.S.: many respondents’ actual income and aspirational income
do not differ much. The first measure of relative income, living standard comparison, suggeststhat if others’ living standards are perceived to be higher than one’s own living standard, people
are unhappier, in both Japan and the U.S. In addition, the negative coefficients of social
comparison income and aspiration comparison income indicate that when there is a larger gap inincome between the reference group and own income, or between one’s own aspiration income
and actual income, the degree of happiness decreases. In summary, an increase in householdincome is associated with an increase of happiness while an increase of social comparison income
and aspiration comparison income decreases happiness in both countries 16 . The sign of thecoefficients of relative income can be positive or negative. Clark and Senik (2010) explain this15

For a more detailed discussion of the U-Shaped relationship between age and happiness, see Easterlin(2006).
16
For a more explicit interpretation of the coefficients regarding relative income, we created an indicator𝑗of 𝑌𝑅𝑖 −𝑌𝑖 as a proxy for relative income. A positive value indicates that household income of thecomparison group or one’s own aspirational income is higher than actual household income. The unit is10,000 USD (1 million JPY). The coefficients indicate that an income difference of approximately 1
million JPY of annual household income decreases happiness by 0.46 unit in Japan; in the U.S., 0.34 unitof decrease in happiness results from a relative income difference of ten thousand USD.

15

ambiguous effect of relative income on happiness using two effects. On the one hand, people areless happy when the reference group does better, which is referred to as the standard “envy” effect.
On the other hand, reference group income contains information about the individual’s own future
prospects, which produces the reverse effect and is referred to as the ambition or “information”
effect; it is also known as the tunnel effect (Hirschman-Rothschild comparison, 1973). In ourwork, we find negative coefficients, implying that the envy effect dominates: people feel lesshappy if others’ incomes or their own aspiration income are higher than their current income.
For a comparison, we calculated household income predicted from the Mincer equation withage dummies, education categorization, gender. It is generally found that results are highly
sensitive to specification, and in some cases the estimated coefficient is close to zero, or even has
the opposite sign (Mayraz et al., 2009)17. In our analysis, the estimated coefficients in both Japanand the U.S. are insignificant and, for the case of Japan, the sign is nominally opposite. This
contrasts with the similar results that are found for all three measures of self-reported relative
income in both Japan and the U.S. This suggests that the effect of income comparisons might becaptured better by a measure of self-reported relative income. de la Garza et al. (2012) argue thatthe estimated absolute and relative income effects are not salient, when the happiness regressions
are based on reference income defined using Mincer-predicted wages. They point out thedifficulty of finding valid exclusion restrictions as the possible reason for the unstable estimation
results. Clark et al. (2013) also compare self-reported comparison income with cell means using
both internal and external data based on age, education, gender and labor force status. The results
between self-reported and cell-means reference income differ by how the cell-means are defined.
They note that self-reported measures are far more salient in providing comparison-income
information18 . In line with Clark et al. (2013), it can be interpreted that simple questions oncomparison income might better capture the actual reference group; or, a more important
determinant for happiness may not be what comparable others actually earn, but rather what
people believe others earn. Even if the reference group who is found to have similar demographic
and labor-related backgrounds from the Mincer equation earns much more, it may not affecthappiness if people do not compare themselves to this reference group.

17

For a comparison, residence dummies and/or labor-related variables are additionally included to
calculate the predicted value of income. However, the estimated absolute and relative income effects arehighly unstable depending on specifications.
18
In contrast to Clark et al. (2013), Clark et al. (2017; Table 3), using the same dataset, report the similar
results between cell-mean measures matched within and outside the dataset and self-declared reference
income. This might be due to different empirical specifications. In their more recent work, the happiness
regressions do not control for the influences of other demographic and socio-economic variables, such as
gender, education, marital status, region, occupation. It can be also because of differently defined cellmeans.

163.2 Relative Consciousness and Relative Income
We investigate the specific effect of relative consciousness on happiness using Eq. (2), in
which individual demographic and labor-related variables are held constant (see Table 5). We findcontradictory results for Japan and the U.S. in terms of the effect of relative consciousness: it isnegatively correlated with happiness in Japan, whereas there is a positive correlated in the U.S.
As the first row of Table 5 indicates, relative consciousness is significantly correlated withhappiness even when controlling for own actual income and relative income in addition todemographic and labor-related variables. Column (1) shows that happiness increases by 0.32 and0.26 points to a one-standard-deviation of (log) net household income. Comparatively,
respondents who perceive relative consciousness intensively exhibit a degree of happiness that islower by 0.26 and 0.1 points to a one-standard-deviation of relative consciousness reported on a
1–5 scale in Japan and the U.S., respectively. The effect of relative consciousness is not largely
different from that of absolute income if we consider happiness is ranged on a 0–10 scale19. Thissuggests the importance of relative consciousness as a determinant for happiness.
Column (2) reports the coefficients of relative consciousness when they are included as adummy for all levels. When the base is five which indicates the largest degree of relative
consciousness, we find that in Japan, lower levels of relative consciousness are positively
correlated with happiness, while in the U.S., lower levels of relative consciousness are negatively
associated with happiness. With an inclusion of relative consciousness, we no longer observe asignificant correlation between social comparison income and happiness in Japan. The effect isreference-group income is captured by the degree of relative consciousness in Japan. Other
coefficients of relative income are reduced in size, which suggests that the effect of income
comparisons is mediated by relative consciousness.
Relative consciousness is a subjective measure, which can be correlated with unobserved
variables. It might then capture some unknown effect. Using the panel data, we examine the effectof within-subject variability in relative consciousness on happiness. The opposite results ofrelative consciousness for the countries in an analysis using panel data are also clearly seen.
Column (2) of Table 6 under each country indicates the results of a fixed-effect model. Column(4) shows the results of the fixed effect model when the panel data is balanced. The coefficientsof relative consciousness in Japan in Columns (1) and (3) are all negative and significant. Thissuggests that Japanese people who become more conscious of other people’s living standards feel

19

The effect of relative consciousness is not largely different from that of relative income; if respondents
believe that their perceived reference group earns more than themselves, it lowers happiness in bothcountries by 0.33 and 0.19 in Japan and the U.S., respectively (Column (3)). The effects of both absoluteincome and relative consciousness in Japan/the U.S., when relative income is controlled for, become
0.24/0.22 points and 0.25/0.10 points, respectively, which are smaller but not much different from thoseobtained when relative income is not controlled for.

17

less happy; the increase in relative consciousness from 2004 to 2006 decreases the degree of
happiness in the same analyzed years. This is consistent when we only use the sample of people
who answered in every year (see the result of balanced data in Column (4)). In contrast, the same
coefficients in the U.S. are positive and statistically significant. This means that within-subject
variability in relative consciousness is significantly associated with the increase in happiness in
the U.S. Becoming highly conscious in the U.S. leads to a higher degree of happiness. These
opposite effects found in Japan and the U.S. remain significant even when including the three
relative income variables as controls20. These results assure that relative consciousness mattersfor happiness. It should be however noted that the panel estimation here does not completely solve
the possible problem of reverse causality.
We further investigate the possible mechanism behind the opposite effect of relative
consciousness in Japan and the U.S. We hypothesize that the extent to which people are consciousof others’ living standards is associated with their perception on their relative status, which could
affect happiness in a different way. For example, if highly conscious people compare themselves
to a higher-income reference group, the intense relative consciousness would decrease thehappiness, which has been found in some previous studies (Clark and Senik, 2010; Mayraz et al.
2009). However, highly conscious people intensively compare downward, the effect of relative
consciousness can be opposite. We first focus on size and direction of coefficients 𝜑 and 𝜃 in
Eq. (3). Note that the coefficient of 𝜑 is a binary indicator of high relative consciousness, while
the coefficient of 𝜃 is interaction between binary indicators of high relative consciousness and a
low-income reference group. Thus, the positive coefficient of interaction (𝜃) indicates that being
highly conscious of others increases happiness when the income level of reference group is lower.
As Column (4) of Table 7 indicates, in the U.S. the interaction (𝜃) is positive and statisticallysignificant. This suggests that highly conscious people report a higher degree of happiness when
they compare themselves with low-income groups. The positive and statistically significant
coefficients of the interaction term (𝜃) are consistently found for all three different measures ofrelative income, as indicated in Columns (4) to (6) of Table 7. This indicates that in the U.S., thereason why highly conscious people are happier is because they see their relative status higher
than others through downward comparisons. Comparatively, the coefficient of 𝜑 reports thehappiness of highly conscious people with high income reference group. The negative sign
suggests that when those who are highly conscious of others compare themselves with highincome reference group, they may be less happy. However, it is not statistically significant. These
results suggest that the integrated effect of relative consciousness is positive in the U.S. due to a20

We report the random effect results in Column (2) for comparison, although the Hauseman test showsthat the fixed-effect is preferred. Relative income (measured only in 2006) are only included into therandom effect model.

18

stronger positive effect that comes from the comparison with low income reference group.
In contrast, we find that in Japan, the coefficient of the interaction (𝜃) is not statisticallysignificant. It suggests that even though those who are highly conscious of others report a lower
happiness, it is not associated with the income level of comparison group. In other words, relative
consciousness and relative income are both negatively, but separately, associated with happinessin Japan. What the positive coefficient of 𝛿 in addition to 𝜃 indicates is that in both countries,
comparison with a low-income reference group on average increases the happiness.
3.3 Individual Choice and Relative Factors
Thus far we have focused on the influence of relative variables on current happiness. We
attempt to investigate the link between happiness and an individual decision in line with the
maximization of utility using Eq. (4). A dependent variable measures the life choices individuals
would make about residing in a town where, when compared to the respondent’s own
circumstances, living standards are generally higher, about the same, or lower. A higher value ofindividual choice for a town indicates that a respondent would choose a town in which thereference group of neighbors would have a higher income than himself or herself. In this section,
we mainly report the estimation results and will then proceed to discuss their implications in
Section 4.
Table 8 reports a positive and statistically significant correlation between individual choice
and relative income in both Japan and the U.S. This suggests that those who respond that theirreference group has a higher living standard and higher household income tend to choose a town
where the neighborhood is richer. Note that relative income is significantly negatively correlatedwith happiness; if other people are richer, respondents feel unhappier (Table 6). In contrast,
positive and significant coefficients of relative income indicate that those who have a higher
income reference income (i.e., either others’ household income or one’s own aspirational income
is larger than own income), which significantly and negatively affect happiness, tend to choose atown of higher-income reference group. This suggests that they tend to make a choice which could
make themselves feel less happy. This individual choice is involved with one particularcomparison group which is neighbor. Thus, for people who chose other reference groups forincome comparisons, the relative income might not act as a significant determinant for thedecision of living environment. Thus, we first include binary indicators for 12 comparison groups
into the model. In addition, we estimate with the restricted sample to those who choseneighborhood as their comparison group. In either case, we find the results do not change21.
21

Table 8 only reports the first case when binary indicators of comparison groups are controlled for.
When the restricted sample is used, the direction and statistical significance of coefficients obtained are
identical to the results of Table 8. The size of coefficients is larger in the model with the restricted sample,
which means the effect of relative income is stronger among those who chose neighborhood as

19

The paradoxical relationship between relative income and happiness and individual choiceis, however, not observed among those who have high relative consciousness in Japan (Table 8).
Those who are highly conscious of others tend to choose a town where a lower-income referencegroup lives. We predict that the effect of relative income on an individual’s choice of town canbe heterogeneous, depending on the degree of relative consciousness, as we observe thestatistically significant integrated effect on happiness. Table 9 provides a statistical test of thishypothesis. The interaction terms between high relative consciousness and high relative income
are negative and statistically significant22. This indicates that while people with higher-income
reference groups on average make a choice that could lead to unhappiness, if they have higher
relative consciousness, they make a different choice. They choose a town with a lower-income
reference group. The low-income neighborhood will make their own relative status higher, which
in turn would make them feel happier. Note that estimations of Table 9 are also conducted withbinary indicators for 12 comparison groups (Columns (1) and (3)). We also restricted our sample
to those who chose neighborhood as their comparison group (Columns (2) and (4)). The
coefficients of interaction term are negative and statistically significant; the effects are evenstronger with the restricted sample.
3.4 Robustness Check
In this section, we discuss whether the coefficients of the main estimations are robust andstable, following the method of Oster (2016). A long-standing controversy over the happiness
regressions is the endogeneity of self-declared income of reference group. We examine the effectof relative status in terms of income on happiness. However, it can be, rather reversely, explainedin a way that respondents think others earn more because they are unhappy. Using the results ofEq. (2), we checked, albeit partly, the effects of omitted variable bias. The approach of Oster(2016) provides significant information about the potential effect of omitted variable bias on
estimated coefficients. Table 10 reports the results. The dependent variable is the degree of
happiness and we report three main confounding variables: household income in actual terms,
relative income, and relative consciousness. The uncontrolled regression in both panels includes
only age and gender. The controlled regressions recall the specifications of Table 3 and Table 5.
In Table 10, Column (1) shows treatment effects, standard errors, and R-squared values when
only age and gender are controlled for. The following Column (2) reports results for the fullcontrol set. The results of relative consciousness indicate that the more respondents are consciousof others’ living standards, the less they report being happy in Japan. The size of the relative
comparison group.
22
When the interaction terms are constructed with binary indicators of social comparison income andaspiration comparison income, the direction of coefficients are same but they are not statisticallysignificant.

20

consciousness effect is reduced with a full set of control variables, but the effect remains
significant. The results for the U.S. in Panel B can be interpreted in the opposite way. Relative
consciousness is positively correlated with happiness in the U.S. with and without the control
variables, but the effect is smaller with controls. Household income in absolute terms increases
the degree of happiness in both Japan and the U.S. In contrast, the three types of relative income
have negative coefficients in both countries. This indicates that having a low relative status whilesurrounded by a high-income reference group makes respondents feel less happy.
In order to investigate whether this statistically significant link is not affected by omitted
variable bias, we report two values for a robustness check. First, we calculated the value of δ forwhich β = 0. This indicates the degree of selection on unobservables relative to observables thatwould be necessary to invalidate the result. If the value of δ is 1, it can be interpreted as meaningthat the observables would be at least as important as the unobservables, if the unobservables
were included in the regression. Thus, a value of δ that exceeds 1 means unobservables would
have to be more important than observables in order to explain away a result. More specifically,the δ of 2.158 that is found in the effect of absolute income on happiness in Japan can beinterpreted as meaning that unobservables would have to be 2.158 times as important as
observables in order to drive the observed coefficient to zero, were the unobservables to be
included. Our overall results suggest that it is unlikely that the effect of absolute income andrelative variables on happiness is due to unobservables. Social comparison income and aspirationcomparison income have negative values of δ , indicating that the coefficient increases inmagnitude with the addition of controls. The δ of –0.789 that is found in the effect of social
comparison income on happiness in Japan indicates that the coefficient of social comparison
income with the full control set is larger in magnitude than that of the base control set. Graham etal. (2016) argue that negative results are unlikely to be driven by omitted variables. This is because
going from zero to the full set of controls strengthens the coefficients of interest when δ is negative.
This makes it unlikely that including additional unobservables would drive the coefficient to zero.
Secondly, we report an identified set of bounds for β, using bounds on 𝑅𝑚𝑎𝑥 𝑎nd δ. 𝑅𝑚𝑎𝑥
is calculated as the R-squared in the regression with controls (𝑅̃ ) multiplied by 1.3. We use theR-squared from each specification as 𝑅̃ , which is reported in Column (5) of Table 10. The
identified set is bounded below by 𝛽̃ , which we obtain when 𝑅𝑚𝑎𝑥 = 1, and above by 𝛽 ∗ ,calculated based on 𝑅𝑚𝑎𝑥 = 1.3𝑅̃ and 𝛿̃ = 1 (see Oster (2016) for details). This set gives
bounds for the different estimated coefficients. All identified sets in Table 10 exclude zero. Oyster(2016) explains that one should use the rule of accepting the effect as causal only if the identified
set excludes zero. In summary, for absolute income, relative income, and relative consciousness,the set [𝛽̃, 𝛽 ∗(min{1.3𝑅̃, 1}, 1)] excludes zero, and the δ which produces β = 0 with 𝑅𝑚𝑎𝑥 =1.3𝑅̃ exceeds 1. This suggests that our estimated coefficients for these three variables are unlikely
21to be affected by omitted variable bias in either country.

4. Discussion and Conclusion
4.1 Relative Consciousness and Choices of Reference GroupOur main finding is that people’s consciousness of others’ standard of living matters forhappiness in both countries. Furthermore, the effects of relative consciousness on happiness areopposite in Japan and the U.S. We find that many people do not particularly care about others’
living standards in Japan. However, those who are conscious of others’ income in Japan report alower level of happiness. In contrast, many more people in the U.S. respond that they areconscious of others’ living standards; relative consciousness is positively correlated withhappiness in the U.S.
We find that relative consciousness affects happiness in association with relative income
status. In Japan, relative consciousness appears to affect happiness independently of relative
income, as we find the interaction between relative consciousness and relative income, when othervariables are held equal, fails to achieve statistical significance. This can be compared with theresult of Table 4 where in Japan, increasingly huge gaps in relative income are significantly
correlated with high consciousness. Although those who report a larger gap in relative income are
more likely to be conscious of others, both are not necessarily interacted to decrease the relative
utility. In contrast, highly conscious people who have a low-income reference group in the U.S.,
which makes their relative status higher, report significantly higher happiness. This makes theoverall effect of relative consciousness on happiness positive in the U.S. The statisticallysignificance of interaction terms are found in all three measures of relative income. The integrated
effect suggests the possibility that highly conscious people endogenously choose low-income
earners as their reference group in the U.S.
The reference group is assumed to be exogenously given and it is often assumed that it issame for all people in a given environment. In contrast, Falk and Knell (2004) present a social
comparison model with endogenous reference standards. They argue that people choose similar
others in a systematic and predictable way. Regarding this endogenous choice of reference group,
the psychological literature provides two motives, called “self-enhancement” and “selfimprovement” (Wood and Taylor, 1991). According to the motive of “self-enhancement,”
individuals who are concerned about their relative status prefer low-income reference groups.
They choose lower income earners as their reference group because the poorer reference groupmakes them feel happier. On the other hand, the self-improvement motive brings some indirect
benefit from a comparison with a high-income reference group. For example, setting a higher goal(in this case, comparing themselves with a higher income reference group) could lead a person to
perform better and improve their situation. Falk and Knell (2004) argue that people optimally22choose their reference standard by balancing the two motives and investigate what happens when
individuals can partly choose their reference groups. They find that the optimal reference level
increases with one’s own abilities, which is a testable prediction.
These self-enhancement and self-improvement tendencies are both observed among highly
conscious people in the U.S., although the self-enhancement effect is stronger and statisticallysignificant. In other words, the decrease in happiness that results from the combination of intensityof relative consciousness and self-improvement is not large enough to eliminate the average
positive effect of relative consciousness on happiness in the U.S. Thus, the motive of selfenhancement that comes from using a low-income reference group makes highly conscious
people in the U.S. feel much happier.
4.2 Happiness and Utility
We have attempted to investigate how individual choices are made, in the sense that choices
serve to maximize the expected stream of utility and/or happiness. We find that people, inparticular less conscious people, are likely to make choices which could lower their feeling of
happiness. We analyze this result in three aspects based on prior research.
First, we focus on some arguments made previously on the possible mechanisms behind themisprediction of utility (see Frey and Stutzer (2014) for details). For instance, if we divide
possible costs and benefits considered in the decision-making procedure (e.g., job offer,assessment of housing, etc.) into economic and non-economic attributes, people find it mucheasier to justify their decisions when absolute economic payoffs are salient (e.g., higher wage, orthe cost per unit area of living space). However, non-economic, intrinsic components (e.g., leisuretime, feelings about new neighbors) tend to carry little weight (Hsee et al., 2003; Prelec andHerrnstein 1991); people put more weight on absolute economic payoffs and underestimate thenon-economic concerns.
Frey and Stutzer (2014) provide their own empirical finding that people incorrectly predict
future utility due to underestimation of non-economic attributes. They use an analysis ofcommuting time in association with happiness. People find their commuting time unpleasant but
need to endure it for monetary or nonpecuniary benefits associated with a better job or residential
location (Rosen, 1986). In this case, in a regression of happiness on commuting time, a zerocoefficient is expected. However, using the SOEP data, Frey and Stutzer (2014) find a significant
negative correlation between commuting time and happiness, even when they control for wealthusing individual fixed effects. They explain that one interpretation is that people mispredict their
future utility by underestimating intrinsic attributes, such as time with family or friends. People
might expect that extra money from lower rent and a higher wage could offset the loss associatedwith intrinsic aspects; however, commuting results in people having less time with their families,
23which in turn reduces the overall level of happiness. In other words, they incorrectly predict the
future relative utility of the things they obtain with the extra income.
Second, another possible interpretation is that happiness is not “utility”, which it is often
assumed to be, since happiness is not maximized by individual choice. Happiness has been
considered to be a reasonable measure of the economic notion of decision utility, which assumes
individuals make decisions that maximize their utility. However, some studies have argued that
we need to be cautious in asserting a direct link between happiness and utility. Kimball and Willis(2006) argue that individuals’ choices that are not expected to maximize their happiness can beinterpreted as evidence that happiness and utility are not the same thing: there is more to life thanhappiness. People’s choice of a town with a high-income reference group is related to preferencesthat include goals beyond a selfish purpose to maximize their own pleasure. To accomplish thosegoals, they would be willing to sacrifice their own happiness to benefit others. For example, theywant to purchase nice things for their family with the extra money and provide a better life for
their children, despite the extra distance and additional commuting time. Our results for the U.S.
indicate that people who have a child under age 6 tend to choose a high-income reference town.
They may choose a desirable residential location that enables their children to attend a betterschool and to buy nice things for children using the extra money. In this case, people are willingto trade off happiness against other monetary or nonpecuniary benefits that increase utility. In thisregard, lower happiness does not contradict utility maximizing behavior. In other words, this canbe a rational choice although it makes them endure unpleasant feelings that come from their lower
relative status.
Based on the arguments raised in Frey and Stutzer (2014) and Kimball and Willis (2006),
the intuition behind our results about decisions is as follows. People might mispredict their utility
because they underestimate non-economic intrinsic attributes, such as lowered feeling of
happiness due to higher-income neighborhood. Our survey question explicitly states that there
will be no difference in the degree of safety and convenience; however, there might be otherabsolute economic benefits for living richer town, such as exclusive housing or a better schoolfor their kids. If they provide rationalistic justifications for extrinsic rather than intrinsic
components, this can partly account for the paradoxical observations in our results. Alternatively,
we can see that there are intrinsic, nonpecuniary benefits that are components of utility, which is
not directly related to one’s own happiness. In other words, these non-economic rewards increase
utility, although they involve a sacrifice in terms of the feeling of happiness. The difference
between these two interpretations is whether we regard a decision lowering happiness as
misprediction of utility or as a rational choice to increase the utility which is not same as happiness.
Finally, Clark et al. (2008) explain that happiness is an evaluation of what has occurred, andsuch an evaluation may not be the same as what people “expected” to happen. They note that24

“utility guides individual choice in the sense that choices serve to maximize the expected streamof utility.” As behavior is driven by expectations and not necessarily by realized outcome,observed happiness may then not be the same construct as expected happiness. It should also be
noted that happiness can be wrongly measured due to survey questions that affect the choices of
respondents regarding happiness (Bertrand and Mullainathan, 2001). For example, the choice of
town might capture an unobserved effect. Although respondents are unhappy if the income of areference group is higher than their own, they still want to live in a town where neighbors have ahigh socioeconomic status. This may be because, although our survey explicitly states that safety
and other conditions are same, respondents may still presume that better living conditions willflow from the higher incomes in the neighborhood.
The main contribution of this paper is to demonstrate the importance of relative
consciousness on the degree of happiness and individual decision. It can affect happiness
differently by country and further by the income level of comparison group. The comparison
intensity increases happiness in the U.S., while the opposite result is observed in Japan. For thiscontradiction, we find that how the effect of relative consciousness on happiness depends on towhom people intensively compare themselves. Highly conscious people in the U.S. tend to choose
low-income reference group, which is the reason for the positive coefficient of relative
consciousness on happiness. The effect of relative consciousness is also found with respect to anindividual’s decision. Being conscious would help to make a decision that maximizes the feelingof happiness. Those who feel less happy due to higher-income reference group consciously
choose a place to live with lower-income neighbors. The mechanism for how and why thisdeterminant helps people to maximize happiness through individual choices (and, indeed, whether
it does) is a topic for future study with a better measure of utility-maximizing behavior.

25

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28

Table 1. Descriptive Statistics
Japan
Mean
Std. Dev.
Dependent Variables
Happiness(0~10)
Individual Choice of Living Environment (1~5)
Absolute Income
Log Household Income
Log Own Income
Relative Income
Living Standard Comparison (1~5)
Social Comparison Income (Income of people around you in log )Aspiration Comparison Income (One's own ideal income in log)
Relative Consciousness (1~5)
Demographic Variables
Female (=1)
Age
Age squaredHigh school graduates (=1)
University graduates (=1)
Graduate school (=1)
Married (=1)
Divorced (=1)
Widow(=1)
Having a child (=1)
Number of Household
Individual Characteristics
Health Condition (1~5)
Religious Devotion (1~5)
Labor-related Variables
Public Sector (=1)
Self-employed (=1)
Part time job (=1)
Unemployed (=1)
Not labor force (=1)
Have ever been unemployed in the last 5 years (=1)
Observations

The U.S.
Mean
Std. Dev.

6.34
3.17

1.84
0.53

7.10
3.18

2.20
0.53

6.31
5.56

0.75
0.96

6.07
5.59

0.97
0.95

3.31
6.47
6.55
2.69

0.68
0.47
0.61
1.02

3.18
6.33
6.25
3.63

0.74
0.71
0.81
1.07

0.51
50.21
2685.1
0.14
0.21
0.02
0.80
0.04
0.04
0.82
3.57

0.50
12.82
1254.8
0.35
0.40
0.13
0.40
0.19
0.19
0.38
1.50

0.50
48.60
2644.7
0.12
0.23
0.13
0.61
0.23
0.10
0.68
2.69

0.50
16.83
1735.5
0.33
0.42
0.33
0.49
0.42
0.30
0.47
1.42

2.76
1.75

1.07
1.10

3.03
2.98

1.21
1.35

0.06
0.10
0.12
0.01
0.24
0.18
2902

0.24
0.29
0.32
0.11
0.43
0.39

0.11
0.06
0.02
0.03
0.26
0.23
2637

0.31
0.23
0.15
0.17
0.44
0.42

NOTES: All variables are summarized with the sample used to analyze determinants of happiness (Table 3). Relative Consciousness
and Individual choice of living environment are described with samples used to Column (1) of Table 5 and Table 8.

Table 2. Happiness by Income Group
Japan (unit: %)Degree ofHappiness
0 (Lowest)
1
2
3
4
5
6
7
8
9
10 (Highest)

Whole(n=3063)
0.2
0.8
1.3
4.6
5.2
22.5
14.7
22.4
18.2
5.7
4.5

Low
Income(n=904)
0.6
1.4
2.1
7.1
7.9
30.4
14.5
16.9
12.4
4.1
2.7

MiddleIncome(n=1195)
0.0
0.3
0.9
4.9
6.3
22.3
16.2
22.8
17.3
4.6
4.2

The U.S. (unit: %)High
Income(n=964)
0.0
0.6
0.9
3.2
3.3
16.2
13.2
25.3
22.9
8.0
6.3

Whole
(n=2846)

Low
Income(n=1151)

0.9
1.1
2.4
3.8
4.0
10.4
8.7
13.4
26.2
16.9
12.3

1.5
1.6
3.6
5.1
4.2
14.4
10.4
14.0
21.2
12.3
11.6

MiddleIncome(n=904)High
Income(n=791)

0.9
1.3
1.3
2.9
4.9
10.2
10.2
12.4
27.7
17.5
10.8

NOTES: After categorizing the household income data into three groups using the 25% and 75% percentile
thresholds as separators, the percentage of each scale of happiness by income group is reported.

0.3
0.5
2.1
3.5
2.8
6.2
6.7
15.5
29.8
21.1
11.4

Table 3. Happiness and Income
Y: Degree of Happiness (0~10)
Absolute Income
Log Household Income
Relative Income
Living Standard Comparison(5: Theirs is much higher than mine)
Social Comparison Income(Income of People Around You)
Aspiration Comparison Income(One's Own Ideal Income)Observations
R-Squared

Japan
(1)

(2)

(3)

(4)

0.4243*** 0.2998*** 0.4892*** 0.5878***(0.050)(0.050)(0.060)(0.077)

The U.S.
(1)(2)-0.2592***(0.058)-0.1737**(0.080)

2,883
0.191

(4)

0.2680*** 0.2246*** 0.3663*** 0.3433***(0.052)(0.053)(0.064)(0.088)-0.5214***(0.048)

2,894
0.159

(3)

2,692
0.164

-0.2008***(0.077)-0.2390***(0.087)
2,778
0.163

2,502
0.123

2,497
0.129

2,452
0.127

-0.1027(0.097)
2,466
0.125

NOTES: Variables listed under "Demographic Variables", "Individual Characteristics", and "Labor-related Variables" in Table 1 (which arereported in Table 6) are all controlled for. Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 4. Relative Consciousness and Main Variables
Panel AJapan
Relative Consciousnes

Low and Lower
Neither Low Nor HighHigh and Higher

Relative Consciousnes

Low and Lower
Neither Low Nor HighHigh and Higher

LivingAbsolute
Percentatge
Standard
IncomeComparison
(1)
0.430
0.338
0.232

(3)
3.249
3.319
3.386
The U.S.
LivingAbsolute
Percentatge
Standard
IncomeComparison
(1)
(2)
(3)
0.147
5.856
3.267
0.254
6.117
3.120
0.599
6.099
3.183

Panel B
Y: Relative Consciousness (1~5)(1)
Absolute Income
Log Household Income
Relative Income
Living Standard Comparison(5: Theirs is much higher than mine)
Social Comparison Income(Income of People Around You)
Aspiration Comparison Income(One's Own Ideal Income)

0.0774***(0.030)

(2)
6.268
6.318
6.361

Japan
(2)

SocialComparison
IncomeAspiration
Comparison
Income(4)-0.005
0.025
0.043

(5)
0.087
0.107
0.130

SocialComparison
Income
(4)
0.057
0.027
0.048

Aspiration
Comparison
Income
(5)
0.022
0.021
0.029

(3)

(1)

The U.S.
(2)(3)

0.1048*** 0.0513*(0.034)(0.030)0.0223(0.027)0.0272(0.029)0.030(0.03)

0.1129***(0.029)-0.0207(0.030)0.1870***(0.050)0.0156(0.055)0.1708**(0.085)-0.016(0.07)NOTES: Panel A summarizes the mean values of happiness sorted by income at both absolute and relative terms. PanelB reports the estimation results of a regression of relative consciousness on income variables; individual demographic
and labor-related variables (which are used in Table 6) are all controlled for.

Table 5. Happiness and Relative Consciousness
Y: Degree of Happiness (0~10)

How much are you conscious of others' living standards?
Relative Consciousness (1~5)(Base: 5)
Relative Consciousness 1

Japan
(1)

(2)

-0.2571***(0.032)

(3)

(4)

(5)

-0.2349*** -0.2509*** -0.2571***(0.031)(0.033)(0.032)The U.S.
(1)
0.0977**(0.039)0.9217***(0.241)
0.6624***(0.233)0.2864(0.232)0.1792(0.234)

Relative Consciousness 2
Relative Consciousness 3
Relative Consciousness 4
Relative Income
Living Standard Comparison(5: Theirs is much higher than mine)
Social Comparison Income(Income of People Around You)
Aspiration Comparison Income(One's Own Ideal Income)

(2)

(3)

(4)

(5)

0.0956**(0.039)0.0895**(0.040)0.0928**(0.039)-0.2633(0.220)-0.5109***(0.159)-0.2504**(0.121)-0.3198***(0.111)-0.4907***(0.048)-0.2618***(0.058)-0.1267(0.079)-0.2100***(0.077)-0.2050**(0.086)-0.1297(0.097)

Absolute Income
Log Household Income

0.4382***(0.049)0.4376*** 0.3207*** 0.4858*** 0.5777***(0.049)(0.050)(0.059)(0.076)

0.2715*** 0.2814*** 0.2275*** 0.3744*** 0.3666***(0.052)(0.052)(0.053)(0.064)(0.088)Observations
R-Squared

2,891
0.178

2,891
0.179

2,489
0.126

2,880
0.206

2,691
0.182

NOTES: Individual demographic and labor-related variables (which are used in Table 6) are all controlled for.
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

2,775
0.182

2,489
0.128

2,484
0.133

2,440
0.130

2,454
0.129

Table 6. Determinants of the Degree of Happiness using Panel Data
Y: Degree of Happiness (0~10)
Japan(1) Cross(2) Fixed
section
EffectMain Control Variables
Log Household Income
0.4382***0.1893***(0.049)(0.052)
Relative Consciousness
Demographic Variables
Female (=1)
Age
Age squaredHigh school graduates
University graduates
Graduate school
Married (=1)
Divorced (=1)(Divorced and widow (=1; Japan)
Widow (=1)
Having a child (=1)
Number of Household
Individual Characteristics
Health Condition (1-5)
Religious Devotion (1-5)
Labor-related Variables
Public Sector (=1)
Self-employed (=1)
Part time job (=1)
Unemployed (=1)
Not labor force (=1)
Have ever been unemployedin the last 5 years (=1)_consObservations
R-squared
Number of panelid(3) Random (4) Fixed
Effect(Balanced)

The U.S.
(1) Crosssection(2) Fixed
Effect(3) Random (4) Fixed
Effect(Balanced)

0.3971***(0.037)

0.2715***(0.052)0.0312(0.149)0.2728*** 0.0379(0.040)(0.149)-0.1823*** -0.0937***(0.022)(0.030)0.0977**(0.039)0.1494*(0.079)0.1012*** 0.1460*(0.030)(0.079)0.0455(0.054)-0.0833(0.135)0.1881***(0.070)-0.0299(0.020)0.0002(0.000)0.6260***(0.124)0.5923***(0.118)0.8570***(0.248)0.0984*(0.051)-0.1956(0.126)0.3313*(0.192)-0.0083(0.035)0.5229***(0.091)-0.0650***(0.021)0.1329(0.218)-0.0058(0.039)0.0982(0.085)-0.0590***(0.015)0.0006***(0.000)-0.0396(0.132)0.1158(0.108)0.1694(0.137)0.5221***(0.196)
0.0630(0.221)-0.1878(0.224)-0.0400(0.120)-0.0745**(0.036)

0.2787***(0.030)0.1607***(0.029)0.1087***(0.026)0.0152(0.034)0.1978***(0.021)0.0896***(0.023)0.0925***(0.029)-0.0143(0.040)0.1504(0.112)0.1011(0.139)-0.0360(0.113)0.3932(0.290)0.2725***(0.091)-0.2515***(0.086)3.9153***(0.579)-0.1953(0.204)0.1881(0.118)0.0262(0.104)0.1317(0.187)-0.0239(0.095)-0.1004(0.075)-19.9059(25.728)0.1190(0.122)0.1495*(0.086)-0.0250(0.080)0.0936(0.165)0.1337**(0.068)-0.2008***(0.059)3.9071***(0.505)

2,891
0.178

5,481
0.028
2,226

5,481

-0.2571***(0.032)0.2018***(0.076)-0.0394*(0.022)0.0002(0.000)0.3887***(0.097)0.3278***(0.086)
0.7699***(0.242)
0.6687***(0.166)
0.0529(0.221)0.3464(0.237)0.3765***(0.140)-0.0862***(0.025)-0.1108***(0.027)0.4990(0.529)0.0001(0.001)2,226

0.0812(0.062)-0.0734(0.158)-0.0111(0.257)-0.0419(0.158)-0.2309(0.440)-0.0227(0.058)0.1643**(0.079)-0.0345*** 1.3442(0.012)(1.592)0.0004*** -0.0160(0.000)(0.017)0.3685*(0.198)0.4767**(0.188)0.5752***(0.203)0.0859-0.0689(0.094)(0.159)-0.1232-0.0078(0.138)(0.258)-0.4207*** -0.0517(0.088)(0.158)0.0524-0.2262(0.088)(0.440)-0.0385*-0.0232(0.023)(0.058)0.3204***(0.035)0.2431***(0.032)0.0428(0.077)-0.0334(0.103)0.3164***(0.027)0.2210***(0.026)-0.2272(0.234)0.1863(0.137)0.0590(0.117)0.0624(0.204)-0.0259(0.110)-0.1231(0.082)-18.8573(24.971)-0.0079(0.183)-0.0905(0.141)
0.0567(0.283)-1.0532***(0.258)0.2080*(0.112)-0.4151***(0.106)4.7428***(0.570)-0.2969(0.316)-0.1251(0.347)-0.5703(0.575)0.0630(0.387)0.0178(0.288)0.3106(0.219)-16.2300(37.736)-0.0109-0.2956(0.109)(0.316)-0.0131-0.1282(0.133)(0.347)0.2144-0.5726(0.220)(0.575)-0.5603*** 0.0650(0.176)(0.387)0.2544*** 0.0202(0.087)(0.288)-0.3927*** 0.3247(0.081)(0.220)3.9525*** -16.5066(0.417)(37.833)

3,858
0.023
1,286

2,489
0.126

4,253
0.016
3,588

4,253

0.5330(0.521)-0.0004(0.001)0.0070(0.060)-0.1747(0.160)1.3475(1.592)-0.0161(0.017)3,588

0.0421(0.077)-0.0231(0.104)

1,324
0.016
662

NOTES: Column (1) uses cross-section data of the 2006 year, which produces the same estimation results as those in Table 5 (1). The rest of Columns for Japan are
based on the panel data from 2004 to 2006; while for the U.S., they are based on the panel data from 2005 and 2006. Column (4) reports the result of fixed-effect modelwith the balanced data. Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 7. Happiness and Relative Consciousness in association with Relative Income
Y: Degree of Happiness (0~10)
Japan
RI: Three measures of relative income
RI1
RI2
(1)
(2)
Relative Variables
Low Income Reference Group (LIRG):
0.6435*** 0.2705***
Equals 1 if others' living standards are low(er) or same
(0.079)(0.094)High Relative Consciousness (RC_Higher):-0.2923**-0.3599***
RC_Higher (=1, if RC is higher and much higher)(0.118)(0.089)Interaction Terms:-0.0553
0.0526
LIRG × RC_Higher(0.150)(0.178)Absolute Income
Log Household Income
0.3462*** 0.3483***(0.050)(0.058)Observations
2,880
2,691

RI3
(3)

The U.S.
RI1
(4)

RI2
(5)

RI3
(6)

-0.0840(0.159)-0.3795***(0.079)0.0938(0.373)0.2934*(0.151)-0.1970(0.161)0.4522**(0.189)-0.1260(0.162)-0.0299(0.099)0.4954**(0.197)-0.3027(0.221)
0.0466(0.091)0.5032*(0.274)0.4384***(0.052)0.2228***(0.053)0.2393***(0.057)0.2729***(0.054)

2,775

2,484

2,440

2,454

NOTES: Individual demographic and labor-related variables (which are used in Table 6) are all controlled for. RI1 indicates "Living Standard Comparison";
RI2 is "Social Comparison Income"; RI3 is "Aspiration Comparison Income". Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 8. Individual Choice and Relative Income
Y=Individual Choice of Living Environment (1~5)(5: Other's income is much higher)
Relative Income
Living Standard Comparison(5: Theirs is much higher than mine)
Social Comparison Income(Income of People Around You)
Aspiration Comparison Income(One's Own Ideal Income)Relative Consciousness
Being consious of others' living standard (1~5)

Japan
(1)

(2)

(3)

-0.0009(0.018)The U.S.
(1)

(2)

(3)

0.0505***(0.017)0.0687**(0.029)0.0687***(0.021)0.0798***(0.024)-0.0349*** -0.0286*** -0.0293***(0.012)(0.011)(0.011)-0.0070(0.012)-0.0052(0.011)0.0025(0.020)-0.0051(0.011)

Absolute Income
Log Income

0.0389**(0.017)0.0391**(0.019)0.0247(0.019)0.0169(0.016)-0.0021(0.017)0.0118(0.018)Observations
R-Squared

2,146
0.023

1,954
0.028

1,990
0.030

1,942
0.030

1,893
0.032

1,891
0.025

NOTES: Individual demographic and labor-related variables (which are used in Table 6) are all controlled for.
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 9. Individual Choice and Relative Consciousness in association with Relative Income
Y=Individual Choice of Living Environment (1~5)
Japan
(1)
(2)
Whole
Restricted
Relative Variables
High Income Reference Group (HIRG):
0.0634**0.0746*Equals 1 if others' living standards are high(er)(0.029)(0.041)High Relative Consciousness (RC_Higher):-0.0178
0.0137
RC_Higher (=1, if RC is higher or much higher)(0.034)(0.047)
Interaction Terms:-0.1145**-0.2166***
HIRG × RC_Higher(0.054)(0.082)Absolute Income
Log Own Income
Observations
R-Squared

The U.S.
(3)
Whole

(4)
Restricted

0.1849***(0.047)0.0190(0.029)-0.1185**(0.058)0.2253***(0.069)0.0084(0.039)-0.1422*(0.083)0.0430**(0.017)0.0147(0.024)0.0171(0.016)0.0321(0.023)

2,146
0.024

1,045
0.033

1,942
0.035

1,000
0.043

NOTES: Individual demographic and labor-related variables (which are used in Table 6) are all controlled for.
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 10. Robustness Check: Selection on Unobservables(1)
Treatment
Baseline EffectVariable(Std.Err.) [ 𝑅 2]
Absolute Income
Log Household Income
Relative Variables
Living Standard Comparison
Social Comparison Income
Aspiration Comparison Income
Relative Consciousness

Absolute Income
Log Household Income
Relative Variables
Living Standard Comparison
Social Comparison Income
Aspiration Comparison Income
Relative Consciousness

(4)

(5)

[ 0.307, 0.433]

2.158

0.206

-0.708 ***-0.521 ***Table 3 (3)0.0425 [0.077]
0.048[ 0.191]-0.629 ***-0.174 ***Table 3 (4)0.054 [0.054]
0.080 [0.164]-0.679 ***-0.239 ***Table 3 (5)0.075 [ 0.035]
0.087 [0.163]-0.262 ***-0.257 ***Table 5 (1)0.0293 [ 0.028]
0.032 [ 0.178]
Panel B: The U.S.
0.374 **
0.268 ***
Table 3 (1)0.0425 [0.028]
0.052 [0.123][-0.521, -0.420]

3.186

0.248

[-0.418, -0.174]-0.7890.213[ -0.913, 0.239]-0.4490.212[-0.257, -0.262]

75.0600.231[0.206, 0.268]

2.447

0.16

-0.418 ***-0.259 ***0.0555 [ 0.020]
0.058 [0.130]-0.410 ***-0.174 ***0.059 [ 0.019]
0.077 [0.127]-0.391 ***-0.1030.086 [0.009]
0.097[0.125]
0.095 ***
0.098 **
0.0377 [0.004]
0.038 [0.122]

Table 3 (3)[ -0.259, -0.200]

3.580

0.168

Table 3 (4)[ -0.451, -0.174]-0.9980.165

Table 3 (5)[ -0.932, -0.103]-0.242

0.163

Table 5 (1)[0.093, 0.098]

46.2830.164(2)Controlled Effect(Std.Err. ) [ 𝑅 2]

(3)
Identified Set
Full Controls

Panel A: Japan
0.575 ***
0.424 ***
Table 3 (1)0.0430 [ 0.063]
0.050 [0.159]

𝛿ሚ for 𝛽 = 0
𝑅𝑚𝑎𝑥
Given 𝑅𝑚𝑎𝑥

NOTES: This table shows the validation results for the analysis of the impact of household income at both absolute and relative terms on happiness.
Baseline effects of both Panel A and B include only gender and age. Full controls are socio-economic variables and labor-related variables included inTable 4. The identified set in Column (3) of this table is bounded below by β ̃ and above by β* calculated based on Rmax given in the last Column (5)and δ ̃ = 1. Column (4) shows the value of δ ̃ which would produce β = 0 given the values of Rmax reported in the Column (5). ∗ significant at 10%
level, ∗∗ significant at 5% level, ∗∗∗ significant at 1% level.

Table A. Determinants of the Degree of Happiness
Y: Degree of Happiness (0~10)
Japan
Whole
(O-Logit)
Main Control Variable
Log Household Income
0.4623***(0.053)
Demographic Variables
Female (=1)
0.2565***(0.081)Age-0.0370(0.023)Age squared
0.0002(0.000)High school graduates
0.3509***(0.103)
University graduates
0.3301***(0.090)Graduate school
0.7988***(0.247)
Married (=1)
0.7414***(0.179)Divorced (=1)
0.1087(0.240)
Widow(=1)
0.4424*(0.249)
Having a child (=1)
0.3660**(0.149)Number of Household-0.0991***(0.026)
Individual Characteristics
Health Condition (1-5)
0.3357***(0.033)
Religious Devotion (1-5)
0.1645***(0.031)
Labor-related Variables
Self-employed (=1)
0.1188(0.119)Public Sector (=1)
0.1182(0.143)
Part time job (=1)
-0.0666(0.120)
Unemployed (=1)
0.5774*(0.338)Not labor force (=1)
0.3009***(0.097)
Have ever been unemployed-0.2481***in the last 5 years (=1)
(0.092)
Observations
R-Squared

2,894

Female(OLS)

The U.S.
Whole(O-Logit)

Whole
(OLS)

0.4275***(0.066)

0.2392***(0.046)

0.2680*** 0.2334***(0.052)(0.074)0.3047***(0.074)0.2106***(0.076)-0.0367*-0.0548*(0.022)(0.032)0.00020.0004(0.000)(0.000)0.3698*** 0.4495**(0.098)(0.201)0.2982*** 0.1285(0.087)(0.109)0.8556*** 0.6005**(0.245)(0.271)0.6599*** 1.0221***(0.168)(0.232)0.0580-0.3891(0.224)(0.332)
0.33420.0013(0.240)(0.429)0.3583** 0.3255(0.141)(0.199)-0.0900*** -0.0721**(0.025)(0.036)-0.0094(0.031)-0.0000(0.000)0.3640***(0.115)0.4935***(0.146)
1.5474**(0.600)0.2104(0.249)0.1204(0.313)0.0959(0.315)0.3139(0.204)-0.1092***(0.035)0.1038(0.073)-0.0515***(0.013)0.0005***(0.000)-0.0017(0.112)0.0778(0.091)0.1798(0.117)0.5584***(0.168)0.0674(0.188)-0.0912(0.192)-0.0716(0.103)-0.0719**(0.031)0.1014(0.085)-0.0600*** -0.0455**(0.015)(0.021)0.0006*** 0.0004*(0.000)(0.000)-0.03470.1884(0.132)(0.191)0.12740.1820(0.108)(0.148)0.18300.2090(0.137)(0.184)0.5196*** 0.4125(0.195)(0.332)
0.06650.0182(0.220)(0.360)-0.1992-0.5767(0.223)(0.376)-0.0400-0.1186(0.119)(0.170)-0.0737** -0.0580(0.036)(0.051)-0.0718***(0.022)0.0007***(0.000)-0.2457(0.185)0.0552(0.159)0.1398(0.208)0.6381**(0.255)0.1000(0.294)0.1020(0.287)0.0484(0.169)-0.0758(0.051)0.3196***(0.030)0.1537***(0.029)0.3048***(0.043)0.1286***(0.045)0.3164***(0.042)0.1682***(0.039)0.3220***(0.032)0.2527***(0.028)0.3169***(0.035)0.2464***(0.032)0.3535***(0.050)0.2289***(0.047)0.1376-0.0394(0.114)(0.136)0.12240.1036(0.141)(0.172)-0.06900.1214(0.114)(0.393)0.5270*0.2062(0.293)(0.392)0.2918*** 0.3721**(0.092)(0.173)-0.2581*** -0.2058*(0.087)(0.125)0.5376**(0.217)
0.0961(0.247)0.0407(0.127)1.1487**(0.448)0.3806***(0.115)-0.2608**(0.121)0.0167(0.155)-0.0874(0.119)0.0214(0.241)-0.8687***(0.218)0.2155**(0.096)-0.3355***(0.091)-0.0098
0.0514-0.0415(0.182)(0.229)(0.300)-0.0900-0.0234-0.1536(0.140)(0.204)(0.196)0.05040.3899-0.1651(0.283)(0.559)(0.337)-1.0068*** -1.0211*** -0.9525***(0.255)(0.370)(0.355)0.1976*
0.4023** 0.0589(0.111)(0.165)(0.155)-0.4114*** -0.6328*** -0.2000(0.106)(0.149)(0.152)

2,894
0.159

1,479
0.159

2,502

2,502
0.123

Whole
(OLS)

Male
(OLS)

0.4243*** 0.4691***(0.050)(0.077)

1,415
0.184

Male
(OLS)

0.2824***(0.049)0.2613***(0.044)

1,249
0.151

NOTES: This appendix compares the results by estimation methods (Ordered logit and OLS). Also, it reports the estimation results by gender.
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Female
(OLS)

1,253
0.120

Table B. Relative Consciousness and Relative Income by Reference GroupJapan
Reference Group

Percent

Relative
Consciousness

The U.S.
Relative
IncomePercent

Relative
Consciousness

Relative
IncomeNeighbor
49.73
2.64
0.12
51.04
3.66
0.20
Classmates of your school days
6.88
2.79
0.15
3.17
3.81
0.45
Friend/Acquaintance
3.56
2.71
0.18
7.15
3.58
0.16
Relatives
3.59
2.96
0.06
6.74
3.78
0.20
Families of your children’s classmates
6.61
2.65
0.00
2.35
3.69
0.07
Person at work in your company
4.18
2.67
0.09
3.81
3.74
0.11
(similar individual characteristics)
Person at work in your company
6.32
2.79
0.13
3.51
3.41
0.02
Person working in another company
1.07
2.73
0.26
1.09
3.56
0.11
(same buz/similar individual characteristics)
Person working in another company
1.82
2.66
0.18
0.65
3.57
0.22
in the same business
Average people in Japan / in the US
11.96
2.33
0.11
16.55
3.62
0.36
Average people in the world
0.16
2.96
0.26
1.5
3.61
0.22
Others
0.67
2.65
0.38
2.45
3.56
0.26
Don't Know
3.45
2.34
0.30
N/A
N/A
N/A
Re-categorized Reference Group
Neighbor
49.73
2.64
0.12
51.04
3.66
0.20
Family
10.44
2.88
0.10
10.32
3.63
0.17
Friend/Acquaintance
10.2
2.85
0.19
9.09
3.67
0.29
Colleagues
13.39
2.68
0.09
9.06
3.67
0.08
Average
12.12
2.65
0.18
18.05
3.57
0.24
NOTES: Respondents were asked to whom they compared themselves when they were asked their relative status in terms of living standard(income). In Japan, there was one more choice of "don’t know". We recategorized the reference group into five in the bottom for an easiercomparsion. The mean values of relative consciousness and relative income, which is calculated by
are reported in the following
columns

Table C. Happiness and Relative Income (Income difference)
Y: Degree of Happiness (0~10)
Japan
(1)
(2)
(3)
(4)
Absolute Income
Log Household Income
0.4243*** 0.2998*** 0.2969*** 0.3769***(0.050)(0.050)(0.061)(0.052)
Relative Income
Living Standard Comparison(5: Theirs is much higher than mine)
Social Comparison Income(Income of People Around You - One's Own Actual Income)Aspirational Income Comparison(One's Own Ideal Income - One's Own Actual Income)Observations
2,894
R-Squared
0.159

The U.S.
(1)

(2)

(4)

0.2680*** 0.2246*** 0.2106*** 0.2557***(0.052)(0.053)(0.057)(0.055)-0.5214***(0.048)-0.2592***(0.058)-0.4629***(0.114)

2,883
0.191

(3)

2,692
0.168

-0.3464**(0.138)-0.6261***(0.147)
2,778
0.166

2,502
0.123

2,497
0.129

2,452
0.126

-0.1739(0.221)
2,466
0.125

NOTES: For a more explicit interpretation of the coefficients regarding relative income, we created an indicator ofas a proxy for relative income. A
positive value indicates that household income of the comparison group or one’s own aspirational income is higher than actual household income. The unit is10,000 USD (1 million JPY). Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1