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The dynamics of perception: modelling subjective wellbeing in a short panel

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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.
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Keywords: British Household Panel Survey; Dynamic panel data models; Ordinal variables; Simulated maximum likelihood

Document Type: Research Article

Affiliations: University of Essex, Colchester, and Institute for Fiscal Studies, London, UK

Publication date: 2008-01-01

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