The present work aims to explore whether there exists a systematic frustration in terms of income expectations among those who have obtained high level of education in Italy, and if this mismatch between expected and effective incomes negatively affects their perception of happiness. We adopt a reference-dependent preferences model combined with the concept of “illusory superiority bias” to analyse data on “happiness” in Italy, provided by the biennial survey conducted by the Bank of Italy on the Italian households’ incomes and wealth between 2004 and 2014. Our results show a positive effect produced by education on incomes. High educated workers have on average higher income than other people, and this difference is statistically significant controlling for working experience and other possible confounding factors. However, the disutility resulting from the frustration of expectations produces negative effects on perceived happiness. Even though highly educated people are actually able to find better job matching in comparison to less educated workers, they are also more likely to seeing their income expectations frustrated.
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The illusory superiority bias may be defined as a perceptual distorsion that affects individuals when they compare themselves to other people. In particular, when people are affected by ISB they tend to believe that they are better than others and they will have a brighter future.
We are implicitly assuming that µ > 0 since a µ = 0 will imply that workers do not receive a wage for their job.
Obviously when expectations are perfectly realized, i.e. w = E(w), the second term of Eq. (1) is equal to zero, and therefore the derivate is calculated only for the first term.
The question is asked only to survey’s respondent and not to all his/her family members. Furthermore, from 2004 to 2010, only a random half of the respondents were interviewed about their perceived happiness. The discussion about an appropriate measure of well-being goes behind the scope of this paper. As observed by Stevenson and Wolvers (2008), even though happiness and life satisfaction may be considered as two different concepts, much of the economics literature assessing subjective well-being used the measures of “life satisfaction” and “happiness” interchangeably. Indeed, these alternative measures of well-being are highly correlated and have similar covariates. See also Frey and Stutzer (2002) for a discussion of the reason why question about subjective happiness may be a good proxy for perceived utility. Unfortunately, in Bank of Italy’s survey a question on job satisfaction was introduced only in two waves (2006–2008) and asked only to half of the occupied respondents implying thus a modest sample size (around 2000 individuals). This has prevented us to test if the effect of frustrated expectations on happiness passes only through a possible relation with job satisfaction.
For more information on the sampling techniques used by the Bank of Italy, see the Supplements to the Statistical Bulletin: http://www.bancaditalia.it/statistiche/indcamp/bilfait/boll_stat.
For each individual, we demeaned the variable years of experience by subtracting the sample mean. Hence, the demeaned variable and its square were used in the model, instead of the original one. This operation was necessary to reduce the obvious collinearity that exists between the original variable and its square.
Note that the sample size differs in this case from that reported in Table 3, because of missing observations for the dependent variable (we remind that this question is not asked to all the participants to the survey).
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The research activity carried out by Gabriele Ruiu has been in part financed by the “Fondo per il finanziamento dei dipartimenti universitari di eccellenza” (Law nr. 232/2016).
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Ruiu, G., Ruiu, M.L. The Complex Relationship Between Education and Happiness: The Case of Highly Educated Individuals in Italy. J Happiness Stud 20, 2631–2653 (2019). https://doi.org/10.1007/s10902-018-0062-4
- Reference dependent preferences