The dynamics of perception: modelling subjective wellbeing in a short panel
We consider the issue of the dynamics of perceptions, as expressed in responses to survey questions on subjective wellbeing. We develop a simulated maximum likelihood method for estimation of dynamic linear models, where the dependent variable is partially observed through ordinal scales. This latent auto-regression model is often more appropriate than the usual state dependence model for attitudinal and interval variables. The paper contains an application to a model of households’ perceptions of their financial wellbeing, demonstrating the superior fit of the latent auto-regression model to both the usual static model and the state dependence model.
Document Type: Research Article
Affiliations: University of Essex, Colchester, and Institute for Fiscal Studies, London, UK
Publication date: January 1, 2008