Happiness economics

Happiness Economics is the study of a country's well-being by combining economists' and psychologists' techniques. It relies on more expanisive notions of utility than does conventional economics. Although its usefulness is yet to be determined, it has become a subject of interest and often a measure of comparison with the traditional forms of measuring market health such as GDP and GNP.

Background

There is a recent trend in economics which relates happiness to economic performance and vice-versa. Some studies suggest that happiness is already an economic indicator or at least can be approximately measured., New economic concepts could now be measured such as the Gross national happiness and the Happy Planet Index. Happy Life Years, a concept brought by Dutch sociologist Ruut Veenhoven is one of the concepts set to measure well-being combining subjective data (subjective life satisfaction, measured on a scale of 0 to 10) with objective data (life expectancy). New Economics Foundation, a British think-tank used this concept to measure the "Happy Planet Index".

On the other hand, a few researchers argue that a bigger economy doesn't always buy happiness. It is argued that happiness could be used as an economic indicator not as a replacement for more traditional measures but as a supplement.

What makes people happy? - Determinates of Happiness

Given its very nature, happiness is subjective. It is difficult to compare one person’s happiness with another. It can be especially difficult to compare happiness across cultures. However, happiness economists believe they have solved this comparison problem. Cross-sections of large data samples across nations and time demonstrate consistent patterns in the determinates of happiness.

Micro-econometric happiness equations have the standard form: $W_{it}=\alpha +\beta {x_{it}}+\epsilon _{it}$. In this equation $W$ is the reported well-being of individual $i$ at time $t$, and $x$ is a vector of known variables, which include socio-demographic and socioeconomic characteristics.

There are some accepted known quantities which make people happier. Money does make people happier, however the rate at which it brings people happiness has a diminishing return as the amount of money increases. Whereas, losing a person’s job is a great source of unhappiness.

With any of these metrics, one concern has always been the accuracy and reliability of people’s responses to happiness surveys. To make happiness metrics more credible, scientists have new tools at their disposal. Advancements in technology have enabled scientists to objectively determine when someone is truly happy by watching whether the joy center of the brain lit up with advanced imaging.

A study conducted at the University of Zurich has revealed that democracy and federalism bring well-being to individuals. It concluded that the more direct political participation possibilities available to citizens raises their subjective well-being. Two reasons were given for this finding. First, a more active role for citizens enables better monitoring of professional politicians by citizens, which leads to greater satisfaction with government output. Second, the ability for ctitizens to get involved in the political process, independently increases well-being.

Development of a Happiness Index

The idea that happiness is important to a society is not new. Thomas Jefferson put the “pursuit of happiness” on the same level as life and liberty in the United States Declaration of Independence. Jeremy Bentham believed that public policy should attempt to maximize happiness. Many other prominent economists and philosophers throughout history, including Aristotle, incorporated happiness into their work, however the idea was before its time.

Several countries have already developed or are in the process of developing a gross national happiness index (GNH). His majesty, King Jigme Singye Wangchuck of Bhutan, is credited with creating the first such index. In 1972, the King was concerned about the problems afflicting other developing countries which were focused on economic growth. While a work in progress, the example set by Bhutan is starting to catch on in other parts of the world. After the military coop of 2006, Thailand also instituted an index. The stated promise of the new Prime Minster Surayud Chulanont is to make the Thai people not only richer but happier as well.

Australia, Canada, China and the United Kingdom are also coming up with indexes to measure national happiness.

Bhutan’s index has led that country to limit the amount of deforestation it will allow and to require that all tourists to its nation must spend US$200 Allegedly, extensive tourism and deforestation lead to unhappiness

Much like GDP results, Thailand releases monthly GNH data. The Thai GNH index is based on a 1-10 scale with 10 being the most happy. As of May 13, 2007, the Thai GNH measured 5.1 points. The index uses poll data from the population surveying various satisfaction factors such as, security, public utilities, good governance, trade, social justice, allocation of resources, education and community problems.

Goals of Happiness Economics

The goal of happiness economics is to determine from what people derive their well-being. Historically, economists have said that well-being is a simple function of income. It has been found that once wealth reaches a certain level, its effectiveness as a generator of well-being is greatly diminished. This paradox has been referred to as the Easterlin Paradox. It appears that this paradox results from a "hedonic treadmill." This means, aspirations increase along with income and after basic needs are met, relative rather than absolute levels of income influence well-being. Happiness economists hope to change the way governments view well-being and how to most effectively govern and allocate resources given this paradox.

Criticism of Happiness Economics

Some have suggested that establishing happiness as a metric is only meant to serve debatable political goals. Recently there has been concern that happiness research could be used to advance authoritarian aims. As a result, some participants at a happiness conference in Rome have suggested that happiness research should not be used as a matter of public policy but rather used to inform individuals.

In addition, survey findings can lead to seemingly absurd interpretations. For example, a happiness study conducted in Russia during the 1990s. indicated that as unemployment grew, the well-being of both those employed and unemployed rose. Presumably, this resulted from diminished expectations and respondents who were less critical of their own situation when many around them were unemployed.

See also

• Economics
• Happy Planet Index
• Gross National Happiness

External links

• Andrew Oswald (1999). "A Non-Technical Introduction to the Economics of Happiness" (PDF). Retrieved 2007-01-08. {{cite web}}: Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help)

• "Genuine Progress Index for Atlantic Canada". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• Nattavudh Powdthavee (2007). "Economics of Happiness: A Review of Literature and Applications" (PDF). Retrieved 2007-04-16. {{cite web}}: Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help)

• "Richard Easterlin". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Andrew Oswald". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Richard Layard". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Bruno Frey". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Rafael Di Tella". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Robert MacCulloch". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Andrew Clark". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Alois Stutzer". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Paul Dolan". {{cite web}}: Cite has empty unknown parameter: |1= (help)

• "Nattavudh Powdthavee". {{cite web}}: Cite has empty unknown parameter: |1= (help)

Bibliography

• Bruni, Luigino (2005). Economics and Happiness: Framing the Analysis. Oxford University Press. pp. pp. 384. ISBN 0-1992-8628-0. {{cite book}}: |pages= has extra text (help); Cite has empty unknown parameter: |month= (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)
• Van Praag, Bernard (2004). Happiness Quantified: A Satisfaction Calculus Approach. Oxford University Press. pp. pp. 352. ISBN 0-1982-8654-6. {{cite book}}: |pages= has extra text (help); Cite has empty unknown parameter: |month= (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)