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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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D0 - Microeconomics - - General
I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare

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  1. Oswald, Andrew J., 2008. "On the Curvature of the Reporting Function from Objective Reality to Subjective Feelings," IZA Discussion Papers 3344, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. 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!]
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  3. Carol Graham, 2008. "Measuring Quality of Life in Latin America: What Happiness Research Can (and Cannot) Contribute," RES Working Papers 4598, Inter-American Development Bank, Research Department. [Downloadable!]
  4. Rafael Di Tella & Robert MacCulloch, 2008. "Happiness Adaptation to Income beyond "Basic Needs"," NBER Working Papers 14539, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Liam Graham & Andrew J. Oswald, 2006. "Hedonic Capital," IZA Discussion Papers 2079, Institute for the Study of Labor (IZA). [Downloadable!]
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  6. Arie Kapteyn & James P. Smith & Arthur van Soest, 2008. "Comparing Life Satisfaction," Working Papers 623, RAND Corporation Publications Department. [Downloadable!]
  7. Christoph Wunder, 2008. "Adaptation to Income over Time: A Weak Point of Subjective Well-Being," SOEPpapers 130, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  8. 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)
  9. Kapteyn, Arie & Smith, James P. & van Soest, Arthur, 2009. "Life Satisfaction," IZA Discussion Papers 4015, Institute for the Study of Labor (IZA). [Downloadable!]
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    • Arie Kapteyn & James P. Smith & Arthur Van Soest, 2009. "Life Satisfaction," Working Papers 623-1, RAND Corporation Publications Department. [Downloadable!]
  10. 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!]
  11. Richard Layard & Guy Mayraz & Stephen Nickell, 2009. "Does Relative Income Matter?: Are the Critics Right?," SOEPpapers 210, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
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  12. 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!]
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  13. Frijters, Paul & Johnston, David W. & Shields, Michael A., 2008. "Happiness Dynamics with Quarterly Life Event Data," IZA Discussion Papers 3604, Institute for the Study of Labor (IZA). [Downloadable!]
  14. Arie Kapteyn & James P. Smith & Arthur van Soest, 2008. "Are Americans Really Less Happy With Their Incomes?," Working Papers 591, RAND Corporation Publications Department. [Downloadable!]
  15. Blanchflower, David G., 2008. "International Evidence on Well-being," IZA Discussion Papers 3354, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Nattavudh Powdthavee, 2009. "Estimating the Causal Effects of Income on Happiness," Discussion Papers 09/02, Department of Economics, University of York. [Downloadable!]
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