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What (If Anything) Do Satisfaction Scores Tell Us about the Intertemporal Change in Living Conditions

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  • Christoph Wunder
  • Johannes Schwarze
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    Abstract

    This paper looks at the information content of satisfaction scores. It is argued that the information content depends on the extent to which people adapt to living conditions in general. Using data from the German Socio-Economic Panel Study (SOEP), the estimation of a dynamic panel data model provides evidence that adaptation takes place within a relatively short window of time: changes in living conditions are, for the most part, absorbed by an adjustment of the adaptation level within one year. This leads to the conclusion that the information content of satisfaction scores accentuates recent changes in living conditions. Remote changes are not captured by the according survey questions, even if these changes have long-term impact on living conditions. The usefulness of satisfaction scores as an indicator of people’s living conditions is discussed.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.357660.de/diw_sp0306.pdf
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    Bibliographic Info

    Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 306.

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    Length: 13 p.
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:diw:diwsop:diw_sp306

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    Keywords: adaptation; dynamic panel data model; subjective well-being; satisfaction;

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    1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    2. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    3. Denis Huschka & Gert G. Wagner, 2010. "Sind Indikatoren zur Lebensqualität und zur Lebenszufriedenheit als politische Zielgrößen sinnvoll?," Research Notes of the German Council for Social and Economic Data 43, German Council for Social and Economic Data (RatSWD).
    4. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
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    6. Rafael Di Tella & John Haisken-De New & Robert MacCulloch, 2007. "Happiness Adaptation to Income and to Status in an Individual Panel," NBER Working Papers 13159, National Bureau of Economic Research, Inc.
    7. J.J. Ehrhardt & W.E. Saris & R. Veenhoven, 2000. "Stability of Life-satisfaction over Time," Journal of Happiness Studies, Springer, vol. 1(2), pages 177-205, June.
    8. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
    9. repec:ese:iserwp:2006-27 is not listed on IDEAS
    10. Stephen Pudney, 2008. "The dynamics of perception: modelling subjective wellbeing in a short panel," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(1), pages 21-40.
    11. Christoph Wunder, 2009. "Adaptation to Income over Time: A Weak Point of Subjective Well-Being," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 129(2), pages 269-281.
    12. Paul Dolan & Tessa Peasgood, 2008. "Measuring Well-Being for Public Policy: Preferences or Experiences?," The Journal of Legal Studies, University of Chicago Press, vol. 37(S2), pages S5-S31, 06.
    13. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
    14. Richard E. Lucas & Andrew Clark & Yannis Georgellis & Ed Diener, 2002. "Re-Examining Adaptation and the Setpoint Model of Happiness: Reactions to Changes in Marital Status," DELTA Working Papers 2002-08, DELTA (Ecole normale supérieure).
    15. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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