Working Paper: NBER ID: w13159
Authors: Rafael Di Tella; John Haisken-DeNew; Robert Macculloch
Abstract: We study "habituation" to income and to status using individual panel data on the happiness of 7,812 people living in Germany from 1984 to 2000. Specifically, we estimate a "happiness equation" defined over several lags of income and status and compare the long run effects. We can (cannot) reject the hypothesis of no adaptation to income (status) during the four years following an income (status) change. In the short-run (current year) a one standard deviation increase in status and 52% of one standard deviation in income are associated with similar increases in happiness. In the long-run (five year average) a one standard deviation increase in status has a similar effect to an increase of 285% of a standard deviation in income. We also present different estimates of habituation across sub-groups. For example, we find that those on the right (left) of the political spectrum adapt to status (income) but not to income (status).
Keywords: Happiness; Income; Status; Adaptation; Panel Data
JEL Codes: D03; I31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income (D31) | Happiness (I31) |
| Status (Y70) | Happiness (I31) |
| Negative changes in income (D31) | Happiness (I31) |
| Income (gains) (E25) | Happiness (I31) |