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Do changes in the lives of our peers make us unhappy?

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Author Info

  • Tony Beatton

    ()
    (QUT)

  • Paul Frijters

Abstract

In this paper, we seek to explain the changes in aggregate happiness over the lifecycle. The advantage of looking at the aggregate level of happiness is that it solves the problems of missing peer effects and measurement error that plague models of individual level happiness, though the disadvantage is a dramatic loss of degrees of freedom. We use panel data from the Household Income and Labour Dynamics for Australia (HILDA), which allows us to construct an index of the severity of life changes for each age. This single-variable Stress Index is able to explain over 80% of the variation in happiness over time. Unexpectedly, aggregate ‘positive stress’ (such as marriage rates by age or levels of job promotion) have greater negative effects on aggregate life satisfaction than negative stress (such as negative financial events or deaths of spouses), which we interpret as a strong indication that what is deemed a positive event by the person involved is a highly negative event for his or her peers. We find some evidence that extraverted individuals get affected less negatively by stress. The happiness maximising policy is then to reduce changes over the life cycle to the bare minimum needed to sustain a dynamic economy and to sustain procreation.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2012/WP290.pdf
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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 290.

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Length: 34 pages
Date of creation: 09 Aug 2012
Date of revision:
Handle: RePEc:qut:dpaper:290

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Web page: http://www.bus.qut.edu.au/faculty/economics/
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Related research

Keywords: Happiness methodology; life satisfaction; endogenous; models; age effects; personality effects; stress; change; life shocks; variables; aggregate; time series;

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References

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  1. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  2. Bruno Frey & Alois Stutzer, 2005. "Happiness Research: State and Prospects," Review of Social Economy, Taylor & Francis Journals, vol. 63(2), pages 207-228.
  3. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
  4. Kerry Chamberlain & Sheryl Zika, 1992. "Stability and change in subjective well-being over short time periods," Social Indicators Research, Springer, vol. 26(2), pages 101-117, March.
  5. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  6. Helen Cheng & Adrian Furnham, 2004. "Perceived Parental Rearing Style, Self-Esteem and Self-Criticism as Predictors of Happiness," Journal of Happiness Studies, Springer, vol. 5(1), pages 1-21, March.
  7. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  8. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
  9. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  10. Bruce Headey, 2008. "The Set-Point Theory of Well-Being: Negative Results and Consequent Revisions," Social Indicators Research, Springer, vol. 85(3), pages 389-403, February.
  11. Michael Fordyce, 1988. "A review of research on the happiness measures: A sixty second index of happiness and mental health," Social Indicators Research, Springer, vol. 20(4), pages 355-381, August.
  12. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  13. Rojas, Mariano, 2007. "Heterogeneity in the relationship between income and happiness: A conceptual-referent-theory explanation," Journal of Economic Psychology, Elsevier, vol. 28(1), pages 1-14, January.
  14. Falk, Armin & Knell, Markus, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," IZA Discussion Papers 1152, Institute for the Study of Labor (IZA).
  15. 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.
  16. Paul Frijters & Tony Beatton, 2008. "The mystery of the U-shaped relationship between happiness and age," NCER Working Paper Series 26, National Centre for Econometric Research.
  17. Easterlin, Richard A., 2006. "Life cycle happiness and its sources: Intersections of psychology, economics, and demography," Journal of Economic Psychology, Elsevier, vol. 27(4), pages 463-482, August.
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Cited by:
  1. Frijters, Paul & Beatton, Tony, 2012. "The mystery of the U-shaped relationship between happiness and age," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 525-542.

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