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Perception and retrospection: the dynamic consistency of responses to survey questions on wellbeing

  • Stephen Pudney

    ()

    (Institute for Fiscal Studies and Institute for Social and Economic Research)

Implementation of broad approaches to welfare analysis usually entails the use of 'subjective' welfare indicators. We analyse BHPS data on financial wellbeing to determine whether reported current and retrospective perceptions are consistent with each other and with the existence of a common underlying wellbeing concept. We allow for adjustment of perceptions in a vector ARMA model for panel data, with dependent variables observed ordinally and find that current perceptions exhibit slow adjustment to changing circumstances and retrospective assessments of past wellbeing are heavily contaminated by current circumstances, causing significant bias in measures of the level and change in welfare.

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File URL: http://cemmap.ifs.org.uk/wps/cwp1210.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP12/10.

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Date of creation: Jun 2010
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Handle: RePEc:ifs:cemmap:12/10
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Web page: http://cemmap.ifs.org.uk
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  1. Vassilis A. Hajivassiliou & Paul A. Ruud, 1993. "Classical Estimation Methods for LDV Models Using Simulation," Cowles Foundation Discussion Papers 1051, Cowles Foundation for Research in Economics, Yale University.
  2. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," Econometrics 9411003, EconWPA.
  3. Henley, Andrew, 1998. "Changes in the Distribution of Housing Wealth in Great Britain, 1985-91," Economica, London School of Economics and Political Science, vol. 65(259), pages 363-80, August.
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  8. Stephen Pudney, 2008. "The dynamics of perception: modelling subjective wellbeing in a short panel," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(1), pages 21-40.
  9. Bruce D. Meyer & James X. Sullivan, 2003. "Measuring the Well-Being of the Poor Using Income and Consumption," NBER Working Papers 9760, National Bureau of Economic Research, Inc.
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  11. Ravallion, Martin & Lokshin, Michael, 2000. "Identifying welfare effects from subjective questions," Policy Research Working Paper Series 2301, The World Bank.
  12. Gabriella Conti & Stephen Pudney, 2011. "Survey Design and the Analysis of Satisfaction," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 1087-1093, August.
  13. 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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  16. Erik Schokkaert, 2007. "Capabilities and Satisfaction with Life," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 8(3), pages 415-430.
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