Accounting for Adaptation in the Economics of Happiness

28 Pages Posted: 20 Jul 2015

See all articles by Miles S. Kimball

Miles S. Kimball

University of Michigan at Ann Arbor - Department of Economics; University of Colorado Boulder; Center for Economic and Social Research, USC; National Bureau of Economic Research (NBER)

Ryan Nunn

U.S. Department of the Treasury

Dan Silverman

University of Michigan at Ann Arbor - Economics Department; National Bureau of Economic Research (NBER)

Date Written: July 2015

Abstract

Reported happiness provides a potentially useful way to evaluate unpriced goods and events; but measures of subjective well-being (SWB) often revert to the mean after responding to events, and this hedonic adaptation creates challenges for interpretation. Previous work tends to estimate time-invariant effects of events on happiness. In the presence of hedonic adaptation, this restriction can lead to biases, especially when comparing events to which people adapt at different rates. Our paper provides a flexible, extensible econometric framework that accommodates adaptation and permits the comparison of happiness-relevant life events with dissimilar hedonic adaptation paths. We present a method that is robust to individual fixed effects, imprecisely-dated data, and permanent consequences. The method is used to analyze a variety of events in the Health and Retirement Study panel. Many of the variables studied have substantial consequences for subjective well-being - consequences that differ greatly in their time profiles.

Suggested Citation

Kimball, Miles S. and Nunn, Ryan and Silverman, Dan, Accounting for Adaptation in the Economics of Happiness (July 2015). NBER Working Paper No. w21365. Available at SSRN: https://ssrn.com/abstract=2633321

Miles S. Kimball (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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Ryan Nunn

U.S. Department of the Treasury ( email )

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Dan Silverman

University of Michigan at Ann Arbor - Economics Department ( email )

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Ann Arbor, MI 48109
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734-764-2769 (Fax)

HOME PAGE: http://www.econ.lsa.umich.edu/

National Bureau of Economic Research (NBER)

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