Is Happiness Contagious? Separating Spillover Externalities from the Group-Level Social Context

We investigate whether individuals feel happier when others around them are happier in broadly defined worker groups. This will be a formal test of spillovers in happiness. Answering this question requires a careful handling of the reflection problem, as it may not be possible to separate the endogenous spillover effects from contextual effects unless an appropriately designed identification strategy is employed. Implementing such a strategy and using the 2008 release of the British Housing Panel Survey (BHPS), we show that the group-level happiness does not have a statistically significant endogenous effect on individual-level happiness in the Great Britain. We report, however, statistically significant contextual effects in various dimensions including age, education, employer status, and health. These results suggest that higher group-level happiness does not spill over to the individual level in neither negative nor positive sense, while the individual-level happiness is instead determined by social context (i.e., the group-level counterparts of certain observed covariates). We also test the relevance of the "Easterlin paradox" and find that our result regarding the effect of income on happiness -- controlling for social interactions effects -- is the group-level analogue of Easterlin's original results.