Happiness Adaptation to Income and to Status in an Individual Panel

40 Pages Posted: 26 Jul 2005

See all articles by Rafael Di Tella

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

John P. Haisken-DeNew

University of Melbourne - Melbourne Institute of Applied Economic and Social Research; McMaster University, Faculty of Social Sciences, Department of Economics

Robert MacCulloch

Imperial College London - Tanaka Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 2004

Abstract

Happiness data can help in evaluating the economic importance of "behavioural" theories. Using individual panel data on up to 7,812 people living in Germany from 1984 to 2000, we illustrate the approach by estimating the size of the effect on happiness of adaptation to income and to status. We cannot reject the null hypothesis that people adapt totally to income after four years. By comparison, significant status effects remain after this time. In the short-run (current year) a one standard deviation increase in status is associated with a similar increase in happiness to an increase of 49% of a standard deviation in income. In the long run (past four years) a one standard deviation increase in status has a similar effect to an increase of 328% of a standard deviation in income. We also discuss some evidence consistent with loss aversion.

Keywords: Happiness, psychology, adaptation to income, adaptation to status

JEL Classification: I31, D0

Suggested Citation

Di Tella, Rafael and Haisken-DeNew, John P. and MacCulloch, Robert, Happiness Adaptation to Income and to Status in an Individual Panel (2004). Available at SSRN: https://ssrn.com/abstract=760368 or http://dx.doi.org/10.2139/ssrn.760368

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John P. Haisken-DeNew

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

McMaster University, Faculty of Social Sciences, Department of Economics ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Robert MacCulloch (Contact Author)

Imperial College London - Tanaka Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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