Do Changes in the Lives of Our Peers Make Us Unhappy?
Tony Beatton and Paul Frijters.
This paper seeks to explain the changes in aggregate happiness over the life-course. The advantage of looking at the aggregate level of happiness is that it solves the problems of missing peer effects and measurement error that plague models of individual level happiness, though the disadvantage is a dramatic loss of degrees of freedom. We use panel data from the Household Income and Labour Dynamics for Australia (HILDA), which allows us to construct an index of the severity of life changes for each age. This single-variable Stress Index is able to explain over 80% of the variation in happiness over time. Unexpectedly, aggregate positive stress, such as marriage rates by age or levels of job promotion, has a greater negative effect on aggregate life satisfaction than negative stress, such as negative financial events or death of a spouse. We interpret this as a strong indication that a positive event by the person involved in a life event shock is a highly negative event for his or her peers. We find evidence that extraverted individuals are less affected by negative stress. The happiness maximising policy is to reduce changes over the life cycle to the bare minimum needed to sustain a dynamic economy while maximising the happiness of society.
August 23, 2018