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Happiness Adaptation to Income and to Status in an Individual Panel

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Author Info
Rafael Di Tella
John Haisken-De New
Robert MacCulloch

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Abstract

We study "habituation" to income and to status using individual panel data on the happiness of 7,812 people living in Germany from 1984 to 2000. Specifically, we estimate a "happiness equation" defined over several lags of income and status and compare the long run effects. We can (cannot) reject the hypothesis of no adaptation to income (status) during the four years following an income (status) change. In the short-run (current year) a one standard deviation increase in status and 52% of one standard deviation in income are associated with similar increases in happiness. In the long-run (five year average) a one standard deviation increase in status has a similar effect to an increase of 285% of a standard deviation in income. We also present different estimates of habituation across sub-groups. For example, we find that those on the right (left) of the political spectrum adapt to status (income) but not to income (status).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13159.

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Date of creation: Jun 2007
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Handle: RePEc:nbr:nberwo:13159

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Find related papers by JEL classification:
D0 - Microeconomics - - General
I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare

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  1. Gardner, Jonathan & Oswald, Andrew J., 2006. "Money and Mental Wellbeing : A Longitudinal Study of Medium-Sized Lottery Wins," The Warwick Economics Research Paper Series (TWERPS) 754, University of Warwick, Department of Economics. [Downloadable!]
    Other versions:
  2. Liam Graham & Andrew J. Oswald, 2006. "Hedonic Capital," IZA Discussion Papers 2079, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Rafael Di Tella & Robert MacCulloch, 2007. "Happiness, Contentment and Other Emotions for Central Banks," NBER Working Papers 13622, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Pérez Truglia, Ricardo Nicolás, 2007. "Can a rise in income inequality improve welfare?," MPRA Paper 4700, University Library of Munich, Germany, revised 22 Dec 2007. [Downloadable!]
  5. Andrew J. Oswald & Nattavudh Powdthavee, 2006. "Does Happiness Adapt? A Longitudinal Study of Disability with Implications for Economists and Judges," IZA Discussion Papers 2208, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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