An agent-based exploration of macroeconomic of happiness: new insights on inequality and the role of reference groups

Abstract This study presents an agent-based model where individuals employ simple heuristics to assess their satisfaction for specific life satisfaction domains and for life satisfaction as a whole, considering reference groups of different dimensions. The objective is to reconcile the evidence on the negative correlation between the income measures and self-reported happiness at the country level with the individuals’ attitude toward happiness. Results from simulations show that the relationship between life satisfaction and income has opposite signs when individuals perform their comparisons basing judgments on the mean or on the median income of their reference groups, and that the extension of the reference groups matters. A role for inequality emerges in determining the relationship between aggregate measures of income and life satisfaction. Results from simulations are validated through data from Eurobarometer for 24 European countries in the period 2008–2020, suggesting that people employ positional evaluations of satisfaction for the income domain by using the median income of the reference group as reference parameter.