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How well do individuals predict their future life satisfaction? Evidence from panel data following a nationwide exogenous shock

Author

Listed:
  • Paul Frijters
  • Harry Greenwell
  • John P. Haisken-DeNew
  • Michael A. Shields

Abstract

Using German panel data, we investigate how well individuals predict their own future life satisfaction. The context is the decade following the 1990 reunification of Germany, which provided a large shock to the future prospects of the inhabitants of the former East Germany. We find that the majority of East Germans significantly overestimated the satisfaction gains from reunification in the years immediately after transition, but by 1994 had converged on correct aggregate expectations. Some evidence of micro-heterogeneity in the prediction errors is found by age and education. For West Germans, we find some initial over-optimism, although less than for East Germans.

Suggested Citation

  • Paul Frijters & Harry Greenwell & John P. Haisken-DeNew & Michael A. Shields, 2009. "How well do individuals predict their future life satisfaction? Evidence from panel data following a nationwide exogenous shock," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1326-1346, November.
  • Handle: RePEc:cje:issued:v:42:y:2009:i:4:p:1326-1346
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    Citations

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    Cited by:

    1. Schwandt, Hannes, 2016. "Unmet aspirations as an explanation for the age U-shape in wellbeing," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 75-87.
    2. Odermatt, Reto & Powdthavee, Nattavudh & Stutzer, Alois, 2017. "Overoptimistic Entrepreneurs: Predicting Wellbeing Consequences of Self-Employment," IZA Discussion Papers 11098, Institute for the Study of Labor (IZA).
    3. Marco Bertoni & Luca Corazzini, 2015. "Life Satisfaction and Endogenous Aspirations," SOEPpapers on Multidisciplinary Panel Data Research 761, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Chadi, Adrian, 2015. "Concerns about the Euro and happiness in Germany during times of crisis," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 126-146.
    5. repec:zbw:rwirep:0375 is not listed on IDEAS
    6. Michael Kind & John P. Haisken-DeNew, 2012. "Sons' Unexpected Long Term Scarring Due to Fathers' Unemployment," Melbourne Institute Working Paper Series wp2012n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    7. Marcus Klemm, 2011. "You Don‘t Know what You‘ve got till It‘s Gone! Unemployment and Intertemporal Changes in Self-Reported Life Satisfaction," Ruhr Economic Papers 0297, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    8. Reto Odermatt & Alois Stutzer, 2015. "(Mis-)Predicted Subjective Well-Being Following Life Events," SOEPpapers on Multidisciplinary Panel Data Research 787, DIW Berlin, The German Socio-Economic Panel (SOEP).
    9. Marcus Klemm, 2011. "You Don't Know What You've Got till It's Gone!: Unemployment and Intertemporal Changes in Self-Reported Life Satisfaction," SOEPpapers on Multidisciplinary Panel Data Research 421, DIW Berlin, The German Socio-Economic Panel (SOEP).
    10. repec:zbw:rwirep:0297 is not listed on IDEAS
    11. Marzieh Abolhassani & Rob Alessie, 2013. "Subjective Well-Being Around Retirement," De Economist, Springer, vol. 161(3), pages 349-366, September.
    12. Michael Kind & John P. Haisken-DeNew, 2012. "Sons‘ Unexpected Long Term Scarring due to Fathers‘ Unemployment," Ruhr Economic Papers 0375, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Foster, Gigi & Frijters, Paul, 2014. "The formation of expectations: Competing theories and new evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 53(C), pages 66-81.
    14. Klemm, Marcus, 2011. "You Don't Know what You've got till It's Gone! Unemployment and Intertemporal Changes in Self-Reported Life Satisfaction," Ruhr Economic Papers 297, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Z1 - Other Special Topics - - Cultural Economics

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