Subjective well-being and reference-dependence: Insights from Mexico

Data from Mexico are used to examine whether two indicators of subjective well-being—income satisfaction and income adequacy—correlate
not only with the respondent’s absolute level of income, but also with their assessment of how their income compares relative
to the income of a reference group, the level of income they hoped to have achieved by that stage of their life, and the income
they had three years earlier. Both subjective well-being indicators correlate positively with the ranking relative to all
three reference points. Some of the findings differ across segments of the income distribution. Subjective well-being assessments
of the poor are influenced more by the inability to achieve income aspirations, while differences with respect to others is
a more prominent factor among non-poor respondents.