How important is Methodology for the Estimates of the Determinants of Happiness?
Psychologists and sociologists usually interpret answers to happiness surveys as cardinal and comparableacross respondents (Kahneman et al. 1999). As a result, these social scientists run OLS regressionson happiness and changes in happiness. Economists, on the other hand, usually only assume ordinalcomparability and have mainly used ordered latent response models. As a consequence, economists haveby and large not taken satisfactory account of fixed individual traits. We address this latter problemby developing a conditional estimator for the fixed-effect ordered logit model. The empirical findingspresented show that it makes virtually no difference whether one assumes ordinality or cardinality ofhappiness answers, whilst allowing for fixed-effects does change results substantially. This leads us toadvocate allowing for and endogenising the persistent personality traits that make up these fixed-effects.
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