Perceptions of inequality through social comparisons and transference on subjective wellbeing: a micro perspective on reference groups

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Social comparisons within reference groups determine subjective wellbeing. A person has a perception of inequality when comparing his/her living conditions with those of others. Social comparisons with reference persons instead of abstract collectivities form the basis of inequality measures. They are also the direct link between inequality and subjective wellbeing. However, despite the importance assigned to the relative concept of social comparison by means of reference groups, at present there is little evidence regarding the delineation of the exact reference group of people in empirical socio-economic research. Formerly, research only used the inferior concept of reference categories (comparing to abstract collectivities) instead of reference groups (requiring personal interactions with group members). The empirical delineation of an individual reference group is theoretically and methodologically challenging and is one of the main reasons why so far less potent concepts such as the reference category was used. Therefore, we propose outlining a framework and developing a survey instrument which methodologically accurately defines individual reference groups. A multi-disciplinary social science perspective is proposed for the development of the instrument. An empirically proven instrument from the area of social network research, the so-called name generator, will be adapted for our purpose. The name generator will then be used to create individualized reference groups, which will be assessed against standard reference categories by employing regression analysis relating to subjective wellbeing. Moreover, perceived inequality measures derived from individualized reference groups will be tested against objective measures of inequality and other perception-based measures of inequality to better explain subjective wellbeing. To analyze the complexity of factors influencing subjective wellbeing, panel data will be collected and analyzed using individual-specific effects within regression analysis to control for time-invariant unobserved characteristics. However, a fixed-effects specification does not allow observed time-invariant regressors (such as gender) to be incorporated into the estimating equation. Therefore, a random-effects specification will also be used. As the latter model imposes stronger assumptions which are often not fulfilled, both the fixed- and random-effects models will be covered in a comparative manner. We suggest Thailand as the case study for the empirical part of the research. Inequality is highly relevant, but under-researched, in emerging and developing economies. Thailand is an emerging economy plagued by severe forms of inequality, which are aggravated by structural transformation. Furthermore, Thai society is highly collectivistic. Everything is mediated through the eyes of one's peers. Thus, Thailand is ideal for investigating the composition of individual reference groups within the inequality-wellbeing nexus.