Consumption Theories and Consumers' Assessments of Subjective Well‐Being

This paper examines the relationships between subjective assessments of well-being and objective economic variables to test and compare three different economic theories of consumption behavior: Modigliani's life cycle income hypothesis (1986); Duesenberry's relative income hypothesis (1949); and a resource deficit hypothesis attributed to Kyrk (1953). Multivariate analyses were designed to isolate and compare the independent effects on subjective well-being of objective economic measures representing these three hypotheses. The following quotes provide an introduction to the main ideas for three different models of the relationship of changes in consumer resources to perceptions of well-being. Each of these statements posits how specific changes in resources and/or preferences affect well-being. Yet all have been ignored in the recent expansion of research on the consumer life cycle. Attempts to understand variation in family and consumer well-being over the life cycle have emphasized the specification of variables to capture the relevant demographic characteristics of each stage in the life cycle (Murphy and Staples 1979; Stampfl 1978). A growing literature on subjective assessments of well-being has been motivated by concern for the sources of reduced satisfaction at particular stages (Campbell, Converse, and Rodgers 1976). Analyses of the implications of changing economic and demographic conditions for economic well-being also have emphasized life cycle stage as a critical variable (Levy 1987). Although variation in consumption needs and resources to meet them has been considered extensively, no systematic empirical effort has been made to relate subjective well-being assessments to economic theories about life cycle consumption behavior. This conclusion is supported by the fact that the literature on life satisfaction has relied on a single, short term measure of economic resources, current income, in conjunction with demographic variables to capture other influences of stage in the life course (e.g., Allardt 1977; Andrews and McKennell 1980; Dohrenwend 1973; Fernandez and Kulik 1981; Gray et al. 1983; Hall 1976; Haring, Stack, and Okun 1984; Keith 1985; Kessler 1982; Link 1982; Mutran and Reltzes 1984). The research presented here is part of a larger project devoted to improving the specification and investigation of relationships among a more comprehensive array of objective economic variables and subjective well-being indicators than heretofore. Prior work on subjective well-being has taken as implicit that current income translates directly into resources for consumption. There has been very little recognition of theories acknowledging the divergence between consumption and income that results from the need to save, the ability to borrow from future income, or pressures to dissave to meet perceived or actual increases in consumption needs. However economic theories and empirical studies of savings and the consumption function have repeatedly demonstrated that utility maximizing consumers do not consume all of their current income (Modigliani and Brumberg 1954) and that current income may be a poor indicator of current consumption as well (Friedman 1957). Other components of financial security undoubtedly contribute to a sense of well-being. For example, individuals with annual incomes of $30,000 are highly likely to diverge with respect to other financial resources. Some have low or negative net worth (i.e., assets minus liabilities), while others have relatively high net worth. Some have relatively inadequate contingency assets. On the other hand, many may be experiencing relatively high, while others relatively low, current incomes with respect to future incomes. While a positive relationship between current income and psychological well-being has been documented extensively, there is also evidence of important exceptions. Campbell (1976) reviewed five national surveys, which all revealed that the proportion of "very happy" people increases with income level. …