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Deconstructing the Hedonic Treadmill: Is Happiness Autoregressive?

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  • Perez Truglia, Ricardo Nicolas
  • Bottan, Nicolas Luis
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    Abstract

    Affective habituation is well-documented in social sciences: people seem to adapt to many life events, ranging from lottery windfalls to terminal illnesses. We propose a subtle but critical difference: current happiness may depend directly on past happiness. We test our hypothesis running dynamic happiness regressions using panel data from the German Socio-Economic Panel Study, the British Household Panel Survey and the Swiss Household Panel. Contrary to the widespread prior among economists and non-economists, the coefficient on lagged happiness is positive and statistically significant. We discuss some explanations for the puzzle. Our favorite is that reported happiness is time-inconsistent, even within individuals. We test this conjecture by using a 52-days study. As expected, the coefficient on lagged happiness is negative and statistically significant. We find that changes in hedonic states bounce back 30% in only 5 days.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20340.

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    Date of creation: Jun 2008
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    Handle: RePEc:pra:mprapa:20340

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    Keywords: happiness; autoregressive; adaptation; dynamic panel;

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    1. Brit Grosskopf, 2000. "Relative Payoffs and Happiness: An Experimental Study," Econometric Society World Congress 2000 Contributed Papers 1263, Econometric Society.
    2. 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.
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    4. Di Tella, Rafael & Haisken-De New, John & MacCulloch, Robert, 2010. "Happiness adaptation to income and to status in an individual panel," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 834-852, December.
    5. Becchetti, Leonardo & Castriota, Stefano, 2008. "Does money affect happiness and self-esteem? The poor borrowers' perspective in a quasi-natural experiment," AICCON Working Papers 48-2008, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    6. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
    7. Kleibergen, F.R. & Paap, R., 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Institute Research Papers EI 2003-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    8. Bruce Headey & Ruud Muffels & Mark Wooden, 2004. "Money Doesn't Buy Happiness … or Does It? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption," Melbourne Institute Working Paper Series wp2004n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    9. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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    13. Loewenstein, George & Ubel, Peter A., 2008. "Hedonic adaptation and the role of decision and experience utility in public policy," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1795-1810, August.
    14. 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.
    15. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
    16. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
    17. Johannes Schwarze, 2003. "Using Panel Data on Income Satisfaction to Estimate Equivalence Scale Elasticity," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(3), pages 359-372, 09.
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