Ordered Response Models and Non-Random Personality Traits: Monte Carlo Simulations and a Practical Guide

Abstract:     
The paper compares different estimation strategies of ordered response models in the presence of non-random unobserved heterogeneity. By running Monte Carlo simulations with a range of randomly generated panel data of differing cross-sectional and longitudinal dimension sizes we assess the consistency and efficiency of standard models such as linear fixed effects, ordered and conditional logit and several different binary recoding procedures. Among the analyzed binary recoding procedures is the conditional ordered logit estimator proposed by Ferrer-i-Carbonell and Frijters (2004) that recently has gained some popularity in the analysis of individual well-being. The Ferrer-i-Carbonell and Frijters estimator (FCF) performs best if the number of observations is large and the number of categories on the ordered scale is small. However, a much simpler individual mean based binary recoding scheme performs similarly well and even outperforms the FCF estimator if the number of categories on the ordered scale becomes large. If the researcher is, however, only interested in the relative size of coefficients with respect to a baseline the easy to compute linear fixed effect model essentially delivers the same results as the more elaborate binary recoding schemes.

Number of Pages in PDF File: 33

Keywords: Fixed Effects, Ordered Logit, Ordered Responses, Happiness

JEL Classification: C230, C250, I310

working papers series