Luxury car owners are not happier than frugal car owners

Adam Okulicz-Kozaryn 0 Tim Nash 0 Natasha O. Tursi 0 JEL Classification I 0 0 A. Okulicz-Kozaryn (&) T. Nash N. O. Tursi Camden , NJ , USA The happiness literature has largely omitted the topic of consumption so far. While some studies investigate the most expensive consumption item, housing, there are no studies about the second most expensive item, the car. We use 2011 wave of American Panel Study of Income Dynamics to investigate the relationship between car consumption and happiness. Car consumption is defined in two ways, as luxury cars (expensive cars, [$35k) and frugal cars (inexpensive cars). We find that luxury car ownership does not make people happier than frugal car ownership. We discuss the practical implications of our findings and directions for future research. This study is limited to the USA, and results may differ elsewhere. Over the past century, the automobile, or car for simplicity, has changed our lives. Commuting, shipping, traveling, and emergency services are all possible or greatly improved due to a car. The car provided freedom, independence, and convenience. On the other hand, air and noise pollution, suburban sprawl, obesity, congestion, and traffic accidents result from car use as well. Fundamentally, the car has transformed the built environment, especially that of recently developed areas outside of the - Northeastern United States. Unlike in Europe, Americas infrastructure is designed around the car including not only roads and parking lots, but also single-use zoning, suburban sprawl, shopping malls, and so forth. Did car make us happy? The topic of cars and happiness1 is interesting for several reasons. First, it may seem obvious to people, especially males, that car, especially a luxury car, brings about happiness. Think of a shiny, fully loaded model of Lexus, BMW, Audi, or any other overpriced car.2 It is easy to imagine that happiness results from such a purchase, and that is arguably a major reason to pay extra for these carstheir purchase promises happiness. It may appear that such a luxury car would bring about much more happiness than a frugal car, say a Toyota Corolla or a Honda Civic. We will argue here that this common wisdom is wrong. Buying a car is a key financial decision for most people, as it is the single largest purchase (after housing).3 Accordingly, many people get themselves into financial trouble by purchasing cars they cannot afford. There are other interesting aspects as elaborated below. The car is related to policy, transportation, development, and sustainability/environmental debates. Yet, there is not a single study exploring the relationship between car and happiness.4 Fundamentally, it is thought-provoking to study the relationship between happiness and any (not only car) consumption, because we are all consumers, and arguably, we usually expect some happiness from our purchases even if we do not think about happiness, but comfort, convenience, and so forth. Consumption is related to personal income, and there is much attention given to income in relation to happiness, but consumption is virtually not studied at all. Yet, what determines actual quality of life or well-being or happiness is rather consumption, not income. Plainly speaking, you cannot eat moneymoney only makes us happy because we 1 Happiness is briefly defined in Sect. 4, we use this term for simplicity instead of a more scientific term subjective well-being (SWB). Also, we mean rather overall life satisfaction (cognition) than momentary happiness (affect). 2 As explained later, these cars are overpriced because consumer pays not only for a product (car), but also for conspicuous or wasteful manifestation of superiority as explained later. In another sense, these cars are not overpriced because consumer pays for exclusivityluxury cars are attractive because they manifest the ability to pay what others cant. But from economic or sustainability perspective, this is waste. 3 Surprisingly cars are not getting cheaper. The first affordable car, Model T, was only $3.5k (in todays dollars), but todays affordable cars cost over $10k. Luxury cars became more expensive, too. For instance, Porsche 911 used to cost $47k (also in todays dollars) in 1965, now it sells for $82k. See http:// www.forbes.com/sites/quora/2013/05/07/why-are-cars-not-getting-cheap-even-with-better-economies-ofscale/ and http://jalopnik.com/5953080/how-inflation-has-jacked-up-the-prices-of-your-favorite-cars/. And yet the market for luxury cars is thriving (e.g., Economist 2013b). Luxury cars are so-called Veblen goods, which become more desirable as they get more expensive. 4 There are studies including car possession dummy variable in their happiness modelsyet, all of them treat car purely as a control variable and accordingly do not give much thought, neither explore it. For details, see World Database of Happiness: Correlational Findings on Happiness and POSSESSIONS Subject Code: P10, specifically P10.2.2.2 at http://www1.eur.nl/fsw/happiness/hap_cor/top_sub.php?code=P10. DeLeire and Kalil (2010) operationalize car consumption in one variable as vehicle purchase (including related expenditures such as insurance, maintenance), and find no effect. Also, see a recent review of research on hedonic consumption (Alba and Williams 2013), which does not mention a single study about a car. can use it for consumption or imagine resulting consumption.5 Some economists actually recognize that consumption is a better measure of permanent income and material well-being than income [Meyer and Sullivan 2003, cited in DeLeire and Kalil (2010)]. Like income, consumption is a policy topicthere is an ongoing discussion about taxing itwe already tax alcohol and tobacco, there are proposals to tax soda, and luxury consumption could be taxed as well. Indeed, even conservative Milton Friedman, who supported small government, has noted that if government needed additional revenue, a progressive consumption tax would be the best way to raise it (Frank 2010). As recently lamented by Frey et al. (2014), there are many empirical happiness studies, but they do not focus enough on theory. Before we analyze the data for this research, we will briefly discuss broad economic, social, and environmental implications of car use and possible causal pathways from car consumption to happiness. We do not claim causality in this purely correlational or observational study. Yet, as persuasively pointed out by labor economist Andrew Oswald (e.g., Blanchflower and Oswald 2011; Oswald 2014), correlational studies are not without merit despite what many economists thinkmany scientific breakthroughs were first discovered in observational studiesfor instance that smoking is related to cancer. Experiments are now in fashion in economics, and it is often overlooked that they suffer from many critical problems that are not inherent in observational studies such as lack of external validity, small sample siz (...truncated)