Life satisfaction, income and personality theory

Neuroticism is responsible for the decline of happiness with high income and its increase for lower incomes in both SOEP and BHPS datasets. We suggest that the effect is due to the psychological cost of the gap between aspiration and realized income. High income individuals fail to meet expectation, this explains lower increase or decrease of life satisfaction for highly neurotic individuals for higher income levels. Data show a hump-shaped relation between income and life satisfaction, with a bliss point between 250-300K 2005 USD. For highly neurotic this peak occurs at lower income, and disappears for non neurotic individuals