Happiness economics

The economics of happiness or happiness economics is the quantitative and theoretical study of happiness, positive and negative affect, well-being, quality of life, life satisfaction and related concepts, typically combining economics with other fields such as psychology and sociology. It typically treats such happiness-related measures, rather than wealth, income or profit, as something to be maximized. The field has grown substantially since the late 20th century, for example by the development of methods, surveys and indices to measure happiness and related concepts. Its findings have been described as a challenge to the economics profession.

Subject classifications

The subject may be categorized in various ways, depending on specificity, intersection, and cross-classification. For example, within the Journal of Economic Literature classification codes, it has been categorized under:

• Welfare economics at JEL: D63 – Equity, Justice, Inequality, and Other Normative Criteria and Measurement
• Health, education, and welfare at JEL: I31 – General Welfare; Basic needs; Living standards; Quality of life; Happiness
• Demographic economics at JEL:J18 – Public Policy.

Metrology

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

Happiness is typically measured using subjective measures - e.g. self-reported surveys - and/or objective measures. One concern has always been the accuracy and reliability of people’s responses to happiness surveys. Objective measures such as lifespan, income, and education are often used as well as or instead of subjectively reported happiness, though this assumes that they generally produce happiness, which while plausible may not necessarily be the case. The terms quality of life or well-being are often used to encompass these more objective measures.

Some scientists claim that happiness can be measured both subjectively and objectively by observing the joy center of the brain lit up with advanced imaging, although this raises philosophical issues, for example about whether this can be treated as more reliable than reported subjective 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.

Determinants

GDP and GNP

Typically national financial measures, such as gross domestic product (GDP) and gross national product (GNP), have been used as a measure of successful policy. There is a significant association between GDP and happiness, with citizens in wealthier nations being happier than those in poorer nations . It has been argued that this relationship extends only to an average GDP per capita of about $15,000. Conclusions in this are controversial Other economists have disputed the accuracy of these studies, finding a logarithmic correlation between GDP per capita and self-reported happiness extending without boundary. It has also been noted that since life expectancy has continued to increase in nations wealthier than this, often partly attributed to economic growth, Happy Life Years have continued to increase.

Individual income

Historically, economists have said that well-being is a simple function of income. However, it has been found that once wealth reaches a subsistence level, its effectiveness as a generator of well-being is greatly diminished. This paradox has been referred to as the Easterlin paradox. Happiness economists hope to change the way governments view well-being and how to most effectively govern and allocate resources given this paradox.

In 2010, Daniel Kahneman and Angus Deaton found that higher earners generally reported better life satisfaction, but people's day-to-day emotional well-being only rose with earnings until a threshold annual income of $75,000.

Other factors have been suggested as making people happier than money. A short term course of psychological therapy is 32 times more cost effective at increasing happiness than simply increasing income.

Scholars at the University of Virginia, University of British Columbia and Harvard University released a study in 2011 after examining numerous academic paper in response to an apparent contradiction: “When asked to take stock of their lives, people with more money report being a good deal more satisfied. But when asked how happy they are at the moment, people with more money are barely different than those with less.” Published in the Journal of Consumer Psychology, the study is entitled “If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending It Right” and included the following eight general recommendations:

• Spend money on “experiences” rather than goods.
• Donate money to others, including charities, rather than spending it solely on oneself.
• Spend small amounts of money on many small, temporary pleasures rather than less often on larger ones.
• Don’t spend money on “extended warranties and other forms of overpriced insurance."
• Adjust one's mindset to “pay now, consume later,” instead of “consume now, pay later.”
• Exercise circumspection about the day-to-day consequences of a purchase beforehand.
• Rather than buying products that provide the "best deal," make purchases based on what will facilitate well-being.
• Seek out the opinions of other people who have prior experience of a product before purchasing it.

In their "Unhappy Cities" working paper, published in July 2014 by the National Bureau of Economic Research (NBER), Edward Glaeser, Joshua Gottlieb and Oren Ziv examined the self-reported subjective well-being of people living in American metropolitan areas, particularly in relation to the notion that "individuals make trade-offs among competing objectives, including but not limited to happiness." The researchers findings revealed that people living in metropolitan areas where lower levels of happiness are reported are receiving higher real wages, and they suggest in their conclusion that "humans are quite understandably willing to sacrifice both happiness and life satisfaction if the price is right."

Social security

Professor Ruut Veenhoven showed that social security payments do not seem to add to happiness. This may be due to the fact that non-self-earned income (e.g., from a lottery) does not add to happiness in general either. Happiness may be the mind's reward to a useful action. However, Johan Norberg of CIS, a free enterprise economy think tank, presents a hypothesis that as people who think that they themselves control their lives are more happy, paternalist institutions may decrease happiness.

An alternative perspective focuses on the role of the welfare state as an institution that improves quality of life not only by increasing the extent to which basic human needs are met, but also by promoting greater control of one's life by limiting the degree to which individuals find themselves at the mercy of impersonal market forces that are indifferent to the fate of individuals. This is the argument suggested by the U.S. political scientist Benjamin Radcliff, who has presented a series of papers in peer reviewed scholarly journals demonstrating that a more generous welfare state contributes to higher levels of life satisfaction, and does so to rich and poor alike.

Employment

Work is important to happiness. It creates a sense of purpose, beneficial relationships with co-workers, and also earns money. Losing one's job can be a great source of unhappiness.

Relationships and children

Relative declines in female happiness have eroded a gender gap in happiness in which women in the 1970s typically reported higher subjective well-being than did men.

In rich societies, where a rise in income doesn't equate to an increase in levels of subjective well-being, personal relationships are the determining factors of happiness.

Glaeser, Gottlieb and Ziv suggest in their conclusion that the happiness trade-offs that individuals seem willing to make aligns with the tendency of parents to report less happiness, as they sacrifice their personal well-being for the "price" of having children.

Freedom and control

There is a significant correlation between feeling in control of one's own life and happiness levels.

A study conducted at the University of Zurich suggested 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 citizens to get involved in and have control over the political process, independently increases well-being.

Higher economic freedom, as measured by both the Heritage and the Fraser indices, correlates strongly with higher self-reported happiness.

Religious diversity

National cross-sectional data suggest an inverse relation between religious diversity and happiness, possibly by facilitating more bonding (and less bridging) social capital.

Leisure

The amount of spare time people have, as well as their control over how much spare time they have, correlates with happiness.

Whereas leisure pursuits increase happiness, watching television is an anomaly, as it seems to correlate with lower happiness. This may be because people who watch a lot of television are lacking in better sources of happiness, such as relationships and other leisure pursuits; that is, people watch television if they don't have anything better to do.

Happiness Economics and Indices Timeline

The idea that happiness is important to a society is not new. Many other prominent intellectuals, philosophers and political leaders throughout history, including Aristotle, Confucius, and Plato incorporated happiness into their work.

Thomas Jefferson put the “pursuit of happiness” on the same level as life and liberty in the United States Jeremy Bentham believed that public policy should attempt to maximize happiness, and he even attempted to estimate a "hedonic calculus". However, the American ruling philosophy protects the right of individuals to seek their own happiness, but does not place an equal responsibility for the citizens' happiness on the government. In the United States, there is no explicit policy that requires the rulers to develop the physical and mental well-being of the citizens or hold the government agencies accountable for their performance against specific measures or metrics of well-being. Until the 1972 there was no formal government policy, anywhere in the world, that placed happiness and well-being as a main criterion for public policy decision making.

The following is a chronological list of happiness economics and well-being indices

1972 - Bhutan's former King, Jigme Singye Wangchuck, introduced the Gross National Happiness (GNH) philosophy and its four development pillars at an international conference.

2005 - Med Jones of the International Institute of Management introduced the first GNH Index and Global GNH Index Survey. The GNH Index, also know Gross National Well-being (GNW) Index framework served as the first integrated objective (economic) and subjective (happiness) socioeconomic development framework. Prior the GNH Index, there were few development indices that improved upon the gross domestic product (GDP), but did not measure happiness. For example, the Genuine Progress Indicator was focused on the environmental cost of economic development, then later (in 2006) it was updated to include similar measures to the GNH Index. Another development index is the Human Development Index (HDI) that originally focused on literacy and education but also did not measure happiness.

2006 - The Genuine Progress Indicator was updated from a green measurement system to a broader concept that included quantitative measurement of well-being and happiness. The new measure is motivated by the philosophy of the GNH and the same notion of that subjective measures like well-being are more relevant and important than more objective measures like consumption. It is not measured directly, but only the factors which are believed to lead to it.

2007 - Thailand releases Green and Happiness Index (GHI).

2008 - The French President Nicolas Sarkozy launched a Happiness Initiative similar to GNH, calling for the inclusion of happiness and well-being among the criteria for national governance policies. He commissioned three prominent economists, Joseph Stiglitz (USA), Amartya Sen (India), Jean-Paul Fitoussi (France), to publish a report calling for a global "statistical system which goes beyond commercial activity to measure personal well-being." Later it was described as gross domestic happiness (GDH). The GDH Index is similar to the GNH Index of 2005.

2009 - In the United States, the Gallup poll system launched the happiness survey collecting data on national scale. The Gallup Well-Being Index was modeled after the GNH Index framework of 2005. The Well-Being Index score is an average of six sub-indexes that measures life evaluation, emotional health, work environment, physical health, healthy behaviors , and access to basic necessities. In October 2009, the USA scored 66.1/100.

2010 - The concept was taken seriously, as the Centre for Bhutan Studies, under the leadership of Karma Ura, developed a sophisticated survey instrument to measure the population's general level of well-being. Two Canadians, Michael and Martha Pennock played a major role in developing the Bhutanese survey, which took a six to seven-hour interview to complete. They developed a shorter international version of the survey which has been used in their home region of Victoria BC as well as in Brazil. The Pennocks also collaborated with Ura in the production of a policy lens which is used by the Bhutanese GNH Commission for anticipating the impact of policy initiatives upon the levels of GNH in Bhutan

2010 - The Center for Bhutan Studies further defined the original four pillars with greater specificity into eight general contributors to happiness—physical, mental and spiritual health; time-balance; social and community vitality; cultural vitality; education; living standards; good governance; and ecological vitality. The Bhutan GNH Index.

2010 - The Oxford Poverty and Human Development Initiative OPHI at the University of Oxford in UK, lunched the Multidimensional Poverty Index (MPI) for the United Nations Development Programme, (UNDP). Similar to the GNH Index of 2005, OPHI promotes collection and analysis of data on five dimensions including Quality of work, Empowerment, Physical safety, Ability to go about without shame, Psychological wellbeing.

2011 - UN General Assembly Resolution 65/309, titled "Happiness: towards a holistic approach to development"

2011 - The Organization for Economic Co-operation and Development (OECD) launched "Better Life Index" (BLI).

2011 - The United Nations released the World Happiness Report

2011 - Canadian Index of Wellbeing Network (CIW Network) releases The Canadian Index of Wellbeing (CIW)

2011 - A leading Israeli newspaper Haaretz, published an article suggesting that western GDP economics is an incomplete development model and called for the adoption of Bhutan's GNH philosophy and Jones' GNH Index in Israel.

2012 - A report prepared for the US Congressman Hansen Clarke, R, Researchers Ben, Beachy and Juston Zorn, at John F. Kennedy School of Government in Harvard University, recommended that "the Congress should prescribe the broad parameters of new, carefully designed supplemental national indicators; it should launch a bipartisan commission of experts to address unresolved methodological issues, and include alternative indicators." They proposed that the government can use the survey results to see which well-being dimensions are least satisfied and which districts and demographic groups are most deficient, so as to allocate resources accordingly. The report list the Gross National Happiness Index and its seven measurement area as one of the main frameworks to consider.

2012 - Professor Dr Peter T. Coleman, a world-renowned director of the International Center for Cooperation and Conflict Resolution at Columbia University, suggested that Jones' GNH Index initiative could inform the Global Peace Index Initiative GPI.

2012 - South Korea launched Happiness Index citing the GNH Index framework.

2012 - The Government of Goa, India published a strategy for socioeconomic development citing the GNH Index as a model for measuring happiness.

2012 - The city of Seattle in Washington, launched its own happiness index initiative, emphasizing measures similar to the GNH Index.

2013 - The Social Progress Index SPI was launched

2013 - The President of Singapore Dr Tony Tan proposed that in addition to building up substantial financial reserves, Singapore also needed to focus on building up its "social reserves", a concept that appears to have parallels to GNH.

2014 - The government of Dubai launched it's localized Happiness Index to measure the public’s contentment and satisfaction with different government services.

2014 - The United Kingdom launched its own well-being and happiness statistics.

Related Studies

The Satisfaction with Life Index. Blue through red represent most to least happy respectively; grey areas have no reliable data available.

The Satisfaction with Life Index is an attempt to show the average self-reported happiness in different nations. This is an example of a recent trend to use direct measures of happiness, such as surveys asking people how happy they are, as an alternative to traditional measures of policy success such as GDP or GNP. Some studies suggest that happiness can be measured effectively. The Inter-American Development Bank (IDB), published in November 2008 a major study on happiness economics in Latin America and the Caribbean.

In 2013, John Helliwell, Richard Layard and Jeffery Sachs compiled a treatise under the title “World Happiness report 2013” to elaborate on the measurement of popular happiness in different countries thereby adding to the wealth of happiness data available while specifically discussing the issues of measurement, explanation and policy. Global and Regional Happiness Levels are explained in terms of 10 regional groupings of countries based on happiness data available for the year 2010-2012. The happiness level is explained as a function of GDP per capita, social support, and healthy life expectancy, freedom to make life choices, generosity and perceptions of corruption.

There are also several examples of measures that includes self-reported happiness as one variable. Happy Life Years, a concept brought by Dutch sociologist Ruut Veenhoven, combines self-reported happiness with life expectancy. The Happy Planet Index combines it with life expectancy and ecological footprint.

Gross national happiness (GNH) is a concept introduced by the King of Bhutan in 1972 as an alternative to GDP. Several countries have already developed or are in the process of developing such an index. 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, low-budget tourism and deforestation lead to unhappiness.

After the military coup of 2006, Thailand also instituted an index. The stated promise of the new Prime Minister Surayud Chulanont is to make the Thai people not only richer but happier as well. 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.

Australia, China, France and the United Kingdom are also coming up with indexes to measure national happiness. The UK began to measure national wellbeing in 2012. North Korea also announced an international Happiness Index in 2011 through Korean Central Television. North Korea itself came in second, behind #1 China. Canada released the Canadian Index of Wellbeing (CIW) in 2011 to track changes in wellbeing. The CIW has adopted the following working definition of wellbeing: The presence of the highest possible quality of life in its full breadth of expression focused on but not necessarily exclusive to: good living standards, robust health, a sustainable environment, vital communities, an educated populace, balanced time use, high levels of democratic participation, and access to and participation in leisure and culture

Ecuador's and Bolivia's new constitutions state the indigenous concept of "good life" ("buen vivir" in Spanish, "sumak kawsay" in Quichua, and "suma qamaña" in Aymara) as the goal of sustainable development.

Neoclassical economics

Neoclassical, as well as classical economics, are not subsumed under the term happiness economics although the original goal was to increase the happiness of the people. Classical and neoclassical economics are stages in the development of welfare economics and are characterized by mathematical modeling. Happiness economics represents a radical break with this tradition. The measurement of subjective happiness respectively life satisfaction by means of survey research across nations and time (in addition to objective measures like lifespan, wealth, security etc.) marks the beginning of happiness economics.

Criticism

Some have suggested that establishing happiness as a metric is only meant to serve 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 ambiguous 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. The interpretation of this could be that it resulted from diminished expectations and respondents who were less critical of their own situation when many around them were unemployed, or it could be interpreted as being the result of everyone benefitting from the unpaid work that the unemployed were able to do for their families and communities with their increased time resource.

See also

• World Happiness Report
• OECD Better Life Index
• Disability-adjusted life year
• Gross National Happiness
• Happiness
• Philosophy of happiness
• Happy Planet Index
• Genuine Progress Indicator
• Legatum Prosperity Index
• Where-to-be-born Index
• Green national product
• Human Development Index
• Gender-related Development Index
• Progress (history)
• Progressive utilization theory
• Law of Social Cycle
• Money-rich, time-poor
• Subjective life satisfaction
• Leisure satisfaction
• World Values Survey
• Psychometrics
• Economics
• Broad measures of economic progress

Researchers

• Richard Easterlin
• Bruno Frey
• Richard Layard
• Andrew Oswald
• Benjamin Radcliff
• Bernard van Praag
• Ruut Veenhoven
• Med Jones

Bibliography

Books

• Anielski, Mark (2007). The Economics of Happiness: Building Genuine Wealth. Canada: New Society Publishers. p. 288. ISBN 978-0-86571-596-7.
• Bruni, Luigino; Pier Luigi Porta (2005). Economics and Happiness: Framing the Analysis. Oxford University Press. p. 384. ISBN 0-19-928628-0.
• Bruni, Luigino (2008). Handbook On the Economics Of Happiness. Description and full contents links and preview.: Edward Elgar Publishing. p. 640. ISBN 978-1-84376-826-5. {{cite book}}: External link in |location= (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)CS1 maint: location (link)
• Gaucher, Renaud, Bonheur et économie. Le capitalisme est-il soluble dans la recherche du bonheur? L'Harmattan, collection L'esprit économique, 2009. ISBN 9782296069169
• Van Praag, Bernard; Ada. Ferrer-i-Carbonell (2004). Happiness Quantified: A Satisfaction Calculus Approach. Oxford University Press. p. 352. ISBN 0-19-828654-6.
• Kahneman, Daniel; Ed Diener (2003). Well-being: the foundations of hedonic psychology. Russell Sage Foundation.

Articles

• Clark, Andrew E., Paul Frijters, and Michael A. Shields (2008). "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, 46(1), pp. 95-144.
• Di Tella, Rafael; Robert J. MacCulloch; Andrew J. Oswald (2003). "The Macroeconomics of Happiness," Review of Economics and Statistics, 85(4), pp. 809–827.
• Easterlin, Richard A. (2004). "The Economics of Happiness," Dædalus, 133(2): 26-33.
• Frey, Bruno S.; Alois Stutzer (2002). "What Can Economists Learn from Happiness Research?" Journal of Economic Literature, 40(2), pp. 402-435.
• MacKerron, George (2012). "Happiness Economics from 35,000 Feet," Journal of Economic Surveys, 26(4), pp. 705–735.

External links

• Andrew Oswald (December 1999). "A Non-Technical Introduction to the Economics of Happiness" (PDF). Retrieved 2007-01-08.
• "Genuine Progress Index for Atlantic Canada".
• "Mark Anielski, "The Economics of Happiness: Building Genuine Wealth"".
• Nattavudh Powdthavee (March 2007). "Economics of Happiness: A Review of Literature and Applications" (PDF). Retrieved 2007-04-16.
• "Rafael Di Tella".
• "Robert MacCulloch".
• "Andrew Clark".
• "Alois Stutzer".
• "Paul Dolan".
• "Benjamin Radcliff".
• "Nattavudh Powdthavee".
• Michael Hoerger (August 2007). "Paths to Happiness Survey, including Money Management subscale". Retrieved 2007-10-31.