How Important is Methodology for the Estimates of the Determinants of Happiness?

Abstract

Psychologists and sociologists usually-interpret happiness scores as cardinal and comparable across respondents, and thus run OLS regressions on happiness and changes in happiness. Economists usually assume only ordinality and have mainly used ordered latent response models, thereby not taking satisfactory account of fixed individual traits. We address this problem by developing a conditional estimator for the fixed-effect ordered logit model. We find that assuming ordinality or cardinality of happiness scores makes little difference, whilst allowing for fixed-effects does change results substantially. We call for more research into the determinants of the personality traits making up these fixed-effects.