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Deconstructing the Hedonic Treadmill: Is Happiness Autoregressive?

  • Perez Truglia, Ricardo Nicolas
  • Bottan, Nicolas Luis
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    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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    File URL: http://mpra.ub.uni-muenchen.de/20340/2/MPRA_paper_20340.pdf
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    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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    1. 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.
    2. Jens Bonke & Martin Browning, 2003. "The Distribution of Well-Being and Income within the Household," CAM Working Papers 2003-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
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    4. Headey, Bruce & Muffels, Ruud & Wooden, Mark, 2004. "Money Doesn’t Buy Happiness… Or Does It? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption," IZA Discussion Papers 1218, Institute for the Study of Labor (IZA).
    5. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    6. 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.
    7. Oswald, Andrew J. & Powdthavee, Nattavudh, 2006. "Does Happiness Adapt? A Longitudinal Study of Disability with Implications for Economists and Judges," IZA Discussion Papers 2208, Institute for the Study of Labor (IZA).
    8. Brit Grosskopf, 2000. "Relative Payoffs and Happiness: An Experimental Study," Econometric Society World Congress 2000 Contributed Papers 1263, Econometric Society.
    9. 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.
    10. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
    11. Caplin, Andrew & Leahy, John, 1997. "Psychological Expected Utility Theory and Anticipatory Feelings," Working Papers 97-37, C.V. Starr Center for Applied Economics, New York University.
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    13. Michael Hagerty, 2003. "Was Life Better in the “Good Old Days”? Intertemporal Judgments of Life Satisfaction," Journal of Happiness Studies, Springer, vol. 4(2), pages 115-139, June.
    14. Robert Whaples, 2009. "The Policy Views of American Economic Association Members: The Results of a New Survey," Econ Journal Watch, Econ Journal Watch, vol. 6(3), pages 337-348, September.
    15. Sendhil Mullainathan & Marianne Bertrand, 2001. "Do People Mean What They Say? Implications for Subjective Survey Data," American Economic Review, American Economic Association, vol. 91(2), pages 67-72, May.
    16. 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.
    17. 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.
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