nep-hap New Economics Papers
on Economics of Happiness
Issue of 2007‒06‒11
seven papers chosen by
Viviana Di Giovinazzo
University of Milano-Bicocca

  1. Happiness Adaptation to Income and to Status in an Individual Panel By Rafael Di Tella; John Haisken-De New; Robert MacCulloch
  2. Does more money buy you more happiness? By Baucells, Manel; Sarin, Rakesh K.
  3. Predicting utility under satiation and habituation By Baucells, Manel; Sarin, Rakesh K.
  4. Cognitive Dissonance, Pessimism, and Behavioral Spillover Effects By David L. Dickinson; Robert J. Oxoby
  5. Dynamic Multi-Level Analysis of Households' Living Standards and Poverty: Evidence from Vietnam By Arnstein Aassve; Bruno Arpino
  6. New Directions in the Analysis of Inequality and Poverty By Stephen P. Jenkins; John Micklewright
  7. A Comparative Analysis of the Nativity Wealth Gap By Thomas K. Bauer; Deborah A. Cobb-Clark; Vincent A. Hildebrand; Mathias Sinning

  1. By: Rafael Di Tella; John Haisken-De New; 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).
    JEL: D0 I31
    Date: 2007–06
  2. By: Baucells, Manel (IESE Business School); Sarin, Rakesh K. (UCLA Anderson School of Management)
    Abstract: Why do we believe that more money will buy us more happiness (when in fact it does not)? In this paper, we propose a model to explain this puzzle. The model incorporates both adaptation and social comparison. A rational person who fully accounts for the dynamics of these factors would indeed buy more happiness with money. We argue that projection bias, that is, the tendency to project into the future our current reference levels, precludes subjects from correctly calculating the utility obtained from consumption. Projection bias has two effects. First, it makes people overrate the happiness that they will obtain from money. Second, it makes people misallocate the consumption budget by consuming too much at the beginning of the planning horizon, or consuming too much of adaptive goods.
    Keywords: Happiness; Life Satisfaction; Social Comparison; Consumer Life-Cycle Planning; Projection Bias;
    Date: 2007–02–14
  3. By: Baucells, Manel (IESE Business School); Sarin, Rakesh K. (UCLA Anderson School of Management)
    Abstract: We introduce a modification of the discounted utility model that accounts for both habituation and satiation in intertemporal choice. Habituation level and satiation level are state variables that induce changes in preferences as those states vary. We examine several properties of our model, discuss willingness to pay for an additional unit of consumption, and characterize the optimal consumption path. Predicted utility under projection bias and narrow bracketing is compared to actual realized utility. We argue that projection bias and narrow bracketing successfully explain the hedonic treadmill in the research area of happiness and life satisfaction.
    Keywords: Time preference; discounted utility; habituation; satiation; local substitution; well-being; life satisfaction;
    Date: 2007–03–05
  4. By: David L. Dickinson; Robert J. Oxoby
    Abstract: This paper reports results from a unique two-stage experiment designed to examine the spillover effects of optimism and pessimism. In stage 1, we induce optimism or pessimism onto subjects by randomly assigning a high or low piece rate for performing a cognitive task. We find that participants receiving the low piece rate are significantly more pessimistic with respect to performance on this task. In stage 2 individuals participate in an ultimatum game. We find that minimum acceptable offers are significantly lower for pessimistic subjects, though this pessimism was generated in a completely unrelated environment. These results highlight the existence of important spillover effects that can be behaviorally and economically important - for example, pessimism regarding one’s initial conditions (e.g., living in poverty) may have spillover effects on one’s future labor market outcomes.
    Date: 2007
  5. By: Arnstein Aassve (Institute for Social and Economic Research); Bruno Arpino (University of Florence)
    Abstract: The paper investigates the role of multi-level structures in poverty analysis based on household level data. We demonstrate how multi-level models can be applied to standard poverty analysis and highlight its usefulness in terms of assessing the extent community characteristics matter in determining poverty status and dynamics. We provide two applications. The first is an example of a growth model that control for characteristics measured at the initial time period, and considers directly to what extent the same characteristics contribute to explain changes in economic wellbeing over time. In the second application we model the determinants of escaping poverty. Both applications use longitudinal data from Vietnam recorded at two points in time during the nineties, a period where Vietnam experienced strong economic growth. We demonstrate that failing to control for multi-level data structures could give incorrect inference about the effect of covariates of interest. We also demonstrate how the multi-level models can be used for regional and community level policy analysis that otherwise is difficult to implement in more standard regression analysis.
    Date: 2007–05
  6. By: Stephen P. Jenkins (Institute for Social and Economic Research); John Micklewright (School of Social Sciences, University of Southampton)
    Abstract: Over the last four decades, academic and wider public interest in inequality and poverty has grown substantially. In this paper we address the question: what have been the major new directions in the analysis of inequality and poverty over the last thirty to forty years? We draw attention to developments under seven headings: changes in the extent of inequality and poverty, changes in the policy environment, increased scrutiny of the concepts of 'poverty' and 'inequality' and the rise of multidimensional approaches, the use of longitudinal perspectives, an increase in availability of and access to data, developments in analytical methods of measurement, and developments in modelling.
    Keywords: income redistribution, inequality, poverty
    Date: 2007–05
  7. By: Thomas K. Bauer; Deborah A. Cobb-Clark; Vincent A. Hildebrand; Mathias Sinning
    Abstract: This paper investigates the source of the gap in the relative wealth position of immigrant households residing in Australia, Germany and the United States. Our results indicate that in German and the United States wealth differentials are largely the result of disparity in the educational attainment and demographic composition of the native and immigrant populations, while income differentials are relatively unimportant in understanding the nativity wealth gap. In contrast, the relatively small wealth gap between Australian and foreign-born households, exists because immigrants to Australia do not translate their relative educational and demographic advantage into a wealth advantage. On balance, our results point to substantial cross-nationality disparity in the economic well-being of immigrant and native families, which is largely consistent with domestic labor markets and the selection policies used to shape the nature of immigration flow.
    Keywords: International migration, wealth accumulation
    JEL: F22 D31
    Date: 2007–06

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