Do changes in the lives of our peers make us unhappy?
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.
|Date of creation:||09 Aug 2012|
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