Essays on subjective well-being and individual behavior

This paper studies the determinants of subjective well-being and the influence of subjective well-being on individuals' economic behavior. In the first chapter, using data from the U.S. General Social Survey, I study the role of income and status in self-reported happiness. Relative income is more important than absolute income in explaining happiness, in particular, income relative to individuals' own cohort working in the same occupation in the same region. Perceptions about relative income are more important than actual relative income in explaining individual well-being and perceptions about one's own social class is more important than the actual social class in explaining happiness. Father's social standing and occupational prestige during childhood decrease current well-being. Perceptions about relative income play a bigger role in explaining happiness for people who watch more TV and they also report lower levels of happiness.;In the second chapter, I examine the impact of happiness on economic behavior which may help regulate particular economic policies such as tax and retirement polices and timing of policy announcements. I use self-reported happiness data from the DNB Household Survey from the Netherlands and the German Socio-Economic Panel. I consider changes in regional sunshine as an exogenous determinant of happiness. Sunshine increases happiness. Instrumenting individual happiness with regional sunshine, I find that happiness increases savings, decreases expenditures, and the marginal propensity to consume is lower for the happy people. Happy people are more risk averse in financial decisions and prefer safer investment tools. Happy people spend more time before decision making, have more control over expenditures, and expect to live longer. Happy people are more concerned about the future than the present and they expect lower prices in the future. Secondary findings suggest that happy people are less likely to smoke and do not desire to move within a country.