Accounting for Adaptation in the Economics of Happiness

Miles Kimball, Ryan Nunn and Dan Silverman

No 21365, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C1 D6 I31 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ecm, nep-hap and nep-hpe
Note: AG EH PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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