Long-running German panel survey shows that personal and economic choices, not just genes, matter for happiness

Abstract

Psychologists and economists take contradictory approaches to research on what psychologists call happiness or subjective wellbeing, and economists call subjective utility. A direct test of the most widely accepted psychological theory, set-point theory, shows it to be flawed. Results are then given, using the economists' newer "choice approach"-an approach also favored by positive psychologists-which yields substantial payoffs in explaining long-term changes in happiness. Data come from the German Socio-Economic Panel , a unique 25-y prospective longitudinal survey. This dataset enables direct tests of theories explaining long-term happiness.German Socio-Economic Panel | set-point theory | subjective utility R esearch on life satisfaction or happiness used to be a minor branch of psychology, became a major branch, and then in the past decade has attracted huge interest among economists. Some of these economists now use satisfaction measures as proxies for the outcome which economic agents are assumed to maximize-namely, individual utility (1-4). But the assumptions and findings of psychologists and economists are contradictory. The dominant theory in psychology is probably still set-point theory, although authentic happiness theory, developed by positive psychologists, is increasingly influential (5-7). Set-point theory holds that long-term adult happiness is stable-it has a setpoint-because it depends mainly on genetic factors, including personality traits molded and expressed early in life (8-10). It has been shown that major life events can temporarily change happiness levels, but that most people revert to their previous setpoint within a year or two (8, 11). The theory can be summarized by saying that, "We are all on a hedonic treadmill" (8). An obvious implication is that neither individual choices nor public policy can make a substantial long-term difference to happiness.Economists who, following the recent advice of the Commission on the Measurement of Economic Performance and Social Progress (12), now intend to use direct satisfaction-based measures of utility must necessarily assume the opposite. There is no point in deploying such measures if individual preferences, behavioral choices, and public policy could not increase long-term satisfaction. If satisfaction levels are unresponsive to changes in behavior or policy interventions, then economists would do better to stick to their mainstream revealed-preferences approach of measuring utility indirectly by observing consumption and leisure choices (13). A recent paper by Oswald and Wu (14) shows plausible cross-sectional associations between objective social and economic conditions and subjective reports of happiness, but, so far as we know, no previous paper has shown that preferences and behavioral choices can produce long-term change.This article reports a direct test of set-point theory, and also shows substantial effects of personal and economic preferences and choices on long-term life satisfaction. A direct test of setpoint theory requires long...

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