Income and Happiness: New Results from Generalized Threshold and Sequential Models

Empirical studies on the relationship between income and happiness commonly use standard ordered response models, the most well-known representatives being the ordered logit and the ordered probit. However, these models restrict the marginal probability effects by design, and therefore limit the analysis of distributional aspects of a change in income, that is, the study of whether the income effect depend on a person’s happiness. In this paper we pinpoint the shortcomings of standard models and propose two alternatives, namely generalized threshold and sequential models. With data of two waves of the German Socio-Economic Panel, 1984 and 1997, we show that the more general models yield different marginal probability effects than standard models.Ordered response models, marginal effects, subjective well-being

From Politics to the Family: How Sex-Role Attitudes Keep on Diverging in Reunified Germany

What is the role of politics in shaping attitudes about appropriate roles for women in the family and the compatibility of work and motherhood? In this paper we argue that the German separation and later reunification produced a natural experiment to address this question. During the divided years, East German institutions encouraged high levels of full-time employment for women, including mothers. The West German system by contrast deterred women in general, and mothers in particular, from full-time employment. After reunification, family-related policies largely converged in the two Germanies. Against this background, we empirically investigate gender-role attitudes in reunified Germany. Our results show that East Germans are significantly more likely to hold egalitarian or nontraditional sex-role attitudes than West Germans. Despite a scenario of partial policy convergence, we also find evidence that the gap between East and West German gender role attitudes more than doubled in the years after reunification. We suggest that one explanation for this divergence could be found in the notion of social identity.political regimes, gender role attitudes

Risk preference based option pricing in a fractional Brownian market

We focus on a preference based approach when pricing options in a market driven by fractional Brownian motion. Within this framework we derive formulae for fractional European options using the traditional idea of conditional expectation. The obtained formulae - as well as further results - accord with classical Brownian theory and con?rm economic intuition towards fractional Brownian motion. Furthermore the in?uence of the Hurst parameter H on the price of a European option will be analyzed. --Fractional Brownian motion,Conditional expectation,Risk preference based option pricing,Fractional option pricing,Fractional Greeks

The Effect of Income on Positive and Negative Subjective Well-Being

Increasing evidence from the empirical economic and psychological literature suggests that positive and negative well-being are more than opposite ends of the same phenomenon. Two separate measures of the dependent variable may be needed when analyzing the determinants of subjective well-being. We argue that this conclusion reflects in part the use of too restrictive econometric models. A flexible multiple-index ordered probit panel data model with varying thresholds can identify response asymmetries in single-item measures of subjective well-being. An application to data from the German Socio-Economic Panel for 1984-2004 shows that income has only a minor effect on positive subjective well-being but a large effect on negative well-being.generalized ordered probit model, marginal probability effects, random and fixed effects, life-satisfaction

Ordered Response Models

We discuss regression models for ordered responses, such as ratings of bonds, schooling attainment, or measures of subjective well-being. Commonly used models in this context are the ordered logit and ordered probit regression models. They are based on an underlying latent model with single index function and constant thresholds. We argue that these approaches are overly restrictive and preclude a flexible estimation of the effect of regressors on the discrete outcome probabilities. For example, the signs of the marginal probability effects can only change once when moving from the smallest category to the largest one. We then discuss several alternative models that overcome these limitations. An application illustrates the benefit of these alternatives.Marginal effects, generalized threshold, sequential model, random coeffcients, latent class analysis, happiness