The Impact of Adaptive Preferences on Subjective Indicators: An Analysis of Poverty Indicators

Abstract

Subjective indicators are often criticized since they are thought to be particularly affected by the phenomenon of adaptive preferences and social comparison. For social policy purposes, processes of downward adaptation in disadvantaged individuals are of particular importance, i.e., it is supposed that such people compare themselves with others who are in the same precarious situation or even worse off and, as a result, lower their expectations and adapt their aspirations and preferences to their material and financial constraints. Based on the 2006–2010 waves of the Swiss Household Panel study, this contribution examines whether, and to what degree, indicators of material deprivation, subjective poverty and subjective well-being are affected by such downward adaptations. Our empirical analysis demonstrates that the bias caused by adaptation processes varies considerably among different measures and that, although subjective indicators are indeed often affected by this phenomenon, there are also robust measures, notably Townsend’s deprivation measure, Hallerod’s proportional deprivation index and the subjective well-being measure of general life satisfaction.