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Yes We Can ...: Happiness Levels Can Change, But Most Recent Changes Are in the Wrong Direction

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  • Bruce Headey

Abstract

Influential economists, like Bruno S. Frey and Richard Layard, are advocating that the standard approach in economics of inferring utility from changes in consumption and leisure should be augmented or replaced by use of subjective measures. But psychologists claim that adult life satisfaction (or happiness) is more or less fixed; it has a "set-point" which is largely determined by genetic factors and early childhood development. Analyses of life-span data, collected by the German Socio-Economic Panel Study (SOEP) in the last 20 years, challenge this claim. About a quarter of the West German population experienced substantial changes in life satisfaction, but losses outweighed gains by a ratio of about 3:1. It is likely that a major reason for the negative balance is relatively poor economic performance since the early 1990s. On the other hand, the results show that the "set-point theory" of psychologists is seriously flawed. Life satisfaction can change and may be open to improvement via individual life choices and/or public policy.

Suggested Citation

  • Bruce Headey, 2009. "Yes We Can ...: Happiness Levels Can Change, But Most Recent Changes Are in the Wrong Direction," Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 5(4), pages 26-30.
  • Handle: RePEc:diw:diwwrp:wr5-4
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