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What Determines Happiness? Income or Attitude: Evidence From
the U.S. Longitudinal Data
Madhu S. Mohanty
California State University, Los Angeles
Using the data from the National Longitudinal Survey of Youth, a longitudinal data set
from the United States, this study demonstrates that the covariates of happiness differ
to some extent between matured adults and young-adults and that the relationship of
personal happiness with positive attitude is stronger than that with any other covariate
of happiness known in the literature including income. These results remain robust to
changes in estimation techniques in response to varying assumptions on the attitude
variable. Assuming endogeneity of the attitude variable, the study estimates happiness
and positive attitude equations simultaneously by a two-stage procedure and obtains
interesting new results. These results indicate that positive attitude is not only a
covariate of happiness, but also a determinant of happiness, especially in the sample of
matured adults. To increase the personal happiness therefore the study recommends
policies designed to help individuals not only increase their incomes, but also improve
their attitudes.
Keywords: happiness, positive attitude, random effect ordered probit, fixed effect ordered probit,
two-stage probit
Most main-stream economists during the last
century focused primarily on the maximization
of utility that an individual may derive by con-
suming goods and services based on his or her
income and showed no serious interest until
recently in examining whether or not such eco-
nomic efforts may lead to an increase in per-
sonal happiness. In fact, both these concepts—
utility and happiness—are often used
synonymously by economists even today (East-
erlin, 2001;Ng, 1997;Oswald, 1997). Frey and
Stutzer (2002) aptly remark, “Happiness re-
search in economics takes reported subjective
well-being as a proxy measure for utility,” and
consequently happiness research in economics
was almost nonexistent until the last quarter of
the 20th century. This silence, however, was
broken in the early 1970s when two major stud-
ies, one by two psychologists (Brickman &
Campbell, 1971) and the other by an eminent
economist (Easterlin, 1974), presented a di-
lemma that an increase in income that can aug-
ment a consumer’s utility does not necessarily
enhance his or her happiness. This dilemma,
widely known in the literature as the “Easterlin
paradox,” has led to numerous studies by sev-
eral economists all over the world in recent
years who have shown increasing interest in
happiness studies examining whether money
can really buy happiness (Ahuvia, 2008;Dea-
ton, 2008;Easterlin, 2001;Frey & Stutzer,
2002;Graham, 2009,2012;Guriev & Zhuravs-
kaya, 2009;Oswald, 1997;Pouwels, Siegers, &
Vlasblom, 2008;Stevenson & Wolfers, 2008).
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Frey and Stutzer (2002) present an excellent review on
the recent developments in happiness research and provide
numerous possibilities for future research. Carol Graham
(2012) provides an in-depth analysis of how findings from
happiness research can be used to formulate more effective
policies for a better future.
This article was published Online First April 7, 2014.
The usual disclaimer applies. I thank Miles Finney, Pra-
vakar Rao, the Editor, and two anonymous reviewers. I also
thank the participants at the human behavior session of the
2013 annual conference of the Eastern Economic Associa-
tion, Boston, Massachusetts; the participants at the 2013
conference of the International Academy of Business and
Public Administration Disciplines, Dallas, Texas; and the
seminar participants at the Sathya Sai University, India, for
helpful comments on a draft of this article.
Correspondence concerning this article should be ad-
dressed to Madhu S. Mohanty, Department of Economics
and Statistics, California State University, Los Angeles,
5151 State University Drive, Los Angeles, CA 90032. E-
mail: mmohant@calstatela.edu or mmohanty9@yahoo.com
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Journal of Neuroscience, Psychology, and Economics © 2014 American Psychological Association
2014, Vol. 7, No. 2, 80–102 1937-321X/14/$12.00 DOI: 10.1037/npe0000019
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