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What do happiness and health satisfaction data tell us about relative risk aversion?
In this paper we provide estimates of the coefficient of relative risk aversion using information on self-reports of subjective personal well-being from three datasets: the Gallup World Poll, the European Social Survey, and the World Values Survey. We additionally consider the implications of allowing for health state dependence in the utility function on estimates of risk aversion and examine how the marginal utility of income changes in poor health states. Our estimates of relative risk aversion vary closely around 1 (in a range of 0.79 to 1.44), which corresponds to logarithmic utility. We find that controlling for health dependence generally reduces these estimates. In contrast to other studies in the literature, our results also suggest that the marginal utility of income increases when health deteriorates, and this effect is robust across the various datasets analyzed.
