Happiness Adaptation To Income And To Status In An Individual Panel

The authors 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, they estimate a "Happiness equation" defined over several lags of income and status and compare the long run effects. They 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.