Reference Group Income and Subjective Well-Being: Empirical Evidence from Low-Income Transition Economies

Abstract

This paper aims at studying the connection between reference group income and life satisfaction in the three republics of the South Caucasus: Armenia, Azerbaijan, and Georgia. I illustrate that in low-income transition economies individuals make not only upward comparisons, decreasing their subjective well-being if the reference group members are richer than they are, but also downward comparisons, enhancing their subjective well-being if the reference group members are poorer. This result contradicts Duesenberry’s idea that comparisons are mostly upward.