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Do changes in the lives of our peers make us unhappy?

Author

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  • Tony Beatton

    () (QUT)

  • Paul Frijters

Abstract

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.

Suggested Citation

  • Tony Beatton & Paul Frijters, 2012. "Do changes in the lives of our peers make us unhappy?," School of Economics and Finance Discussion Papers and Working Papers Series 290, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:290
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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2012/WP290.pdf
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    References listed on IDEAS

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    8. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    9. Frijters, Paul & Beatton, Tony, 2012. "The mystery of the U-shaped relationship between happiness and age," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 525-542.
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    Cited by:

    1. Frijters, Paul & Beatton, Tony, 2012. "The mystery of the U-shaped relationship between happiness and age," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 525-542.

    More about this item

    Keywords

    Happiness methodology; life satisfaction; endogenous; models; age effects; personality effects; stress; change; life shocks; variables; aggregate; time series;

    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

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