This paper uses the exogenous variation in oil prices to study the negative effect of income aspirations on households' satisfaction with income. To evaluate the effect the authors use data on reported satisfaction with income from Kazakhstan's Household Budget Survey - a quarterly, unbalanced panel of households covering the period 2001-2005. Their results suggest that a 20% increase in the oil price decreased households' satisfaction with income by half a standard deviation within a year. The authors argue that the drop in satisfaction is due to peoples' inflated expectations. This result highlights the importance of managing expectations in a rapidly changing economic environment.

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Oxford Centre for the Analysis of Resource Rich Economies