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Journal of Happiness Studies

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26.07.2015 | Research Paper

The Dynamics of Perceived Financial Difficulties

verfasst von: Alessio Fusco

Erschienen in: Journal of Happiness Studies | Ausgabe 4/2016

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Abstract

The perceptions of individuals regarding their own economic situation are sometimes used to measure individuals’ welfare or standard of living, thereby complementing the conventional income-based approach. While the importance of using longitudinal data when analysing the determinants of perceptions has recently been emphasized, the question of state dependence—the extent to which the past affects the present—has rarely been accounted for in the subjective economic well-being literature. The main contribution of the current paper is precisely to investigate the issue of state dependence in perceived financial difficulties. The application of an endogenous switching Markov model to data from the Luxembourg socioeconomic panel ‘Liewen zu Lëtzebuerg’ for the period 2003–2009 leads to the conclusion that there is a sizeable proportion of genuine state dependence, which confirms the importance of appropriately taking into account dynamic issues when modelling subjective variables.

Vorheriger Artikel The Transformational Processing of Peak and Nadir Experiences and their Relationship to Eudaimonic and Hedonic Well-being

Nächster Artikel Does Career Success Make You Happy? The Mediating Role of Multiple Subjective Success Evaluations

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The use of subjective variables to measure concepts that are inherently hard to grasp has also been proposed in other fields. See for example, Schneider and Bowen (1985) in the service quality literature and Soteriou and Zenios (1999) in the banking sector.

Newman et al. (2008) analysed this question by adding to their unbalanced panel attrition variables and found that attrition does not seem to be related to financial satisfaction. However, they do not provide a formal test.

To ensure that our main conclusions do not depend on this choice, we will run a robustness check using the following alternative dichotomization: individuals are considered as being in perceived financial difficulty if they report having “great difficulties”, “difficulties” or “some difficulties” and as not being in such a situation if they answer otherwise.

As mentioned earlier, two robustness checks have been carried out. First, we included the logarithm of household net income as a covariate. Second, given that the way we dichotomized our variable of interest may have an impact on our results we ran a robustness check where individuals are considered in perceived financial difficulties if they answer (1 “great difficulties” 2 “difficulties” 3 “some difficulties”) and not if they answer (4 “fairly easily” 5 “Easily” 6 “Very easily”). Results regarding the extent of state dependence and the tests of exogeneity of retention and initial conditions were similar, therefore giving us confidence in the robustness of our main results.

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Titel: The Dynamics of Perceived Financial Difficulties
verfasst von: Alessio Fusco
Publikationsdatum: 26.07.2015
Verlag: Springer Netherlands
Erschienen in: Journal of Happiness Studies / Ausgabe 4/2016
Print ISSN: 1389-4978
Elektronische ISSN: 1573-7780
DOI: https://doi.org/10.1007/s10902-015-9661-5

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