Do Envy and Compassion Pave the Way to Unhappiness? Social Preferences and Life Satisfaction in a Spanish City

Abstract

Mounting evidence shows that people’s self-reported life satisfaction (LS) is negatively related to income inequality. Under the interpretation of LS as a proxy for utility in the context of social preferences, this finding indicates that individuals display inequality-averse preferences. We explore the relationship between self-reports on inequality aversion and LS in a citywide representative survey/experiment conducted in Spain. If self-reported well-being is indeed an appropriate proxy for utility, LS should correlate negatively with both “envy” and “compassion” scores (i.e., how much one suffers from disadvantageous and advantageous inequality, respectively). We find that LS relates negatively to envy but positively to compassion, which would imply that suffering from observing poorer others, paradoxically, increases well-being. Using an incentivized Dictator Game as a measure of generous behavior, we reject the hypothesis that the positive link between compassion and LS is actually driven by generosity. These findings suggest that LS may not be a good proxy for utility in this context.