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Happiness economics

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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.[1] Its findings have been described as a challenge to the economics profession.[2]

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:


Given its very nature, reported happiness is subjective.[5] It is difficult to compare one person’s happiness with another's.[1] It can be especially difficult to compare happiness across cultures.[1] 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.[1]

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.[6] 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,[6] 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}.[1] 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.[1]



Typically national financial measures, such as [9][10]

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.[11] This paradox has been referred to as the Easterlin paradox.[1] Happiness economists hope to change the way governments view well-being and how to most effectively govern and allocate resources given this paradox.[12]

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.[13]

Gregg Easterbrook claims that even though wealth, or economic surplus, is more common today than in 1950, people are still as happy as they were 60 years ago. In polls taken by the National Opinion Research Center, about 1/3 Americans said they were really happy in 1950, since then the polls have been taken periodically, and the results have stayed about the same since then.

Other factors have been suggested as making people happier than money.[6] A short term course of psychological therapy is 32 times more cost effective at increasing happiness than simply increasing income.[14][15]

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.[16]

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."[17]

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.[18][19]

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.[20][21][22]


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.[12]

Relationships and children

Relationships, particularly those with women, are important to the happiness of both sexes. Research has examined the paradox of women’s declining relative well-being, which is found across various datasets and measures of subjective well-being, and which is pervasive across demographic groups and industrialized countries.[23] 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. [24]

Children tend to decrease parental happiness—at least until they leave home; although, in terms of a broader life narrative the opposite may be true.[6] Research shows that toddlers and teenagers decrease parental happiness, whereas other age periods increase it, averaging out to no overall change. Married people report greater degrees of happiness, but it is unclear if this is due to the marriage or if happy people are more likely to marry.[6]

Gilberts writes that prospective parents know that raising children will be laborious, yet they believe it will make them very happy. In fact, studies show it does just the opposite, and that levels of parental happiness don't rise until kids leave for college ... Still, if happiness is thought of in terms of a broader life narrative, rather than just specific moments of teething, diaper changing and petty-cash culling, it's pretty clear that kids do add value ... married couples test happier, but it's unclear if that's because happy people marry ... "We are the product of our genes and our societies," says Gilbert. Traditions will trump the empirical evidence that money and kids won't make us happy.[6]

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.[17]

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.[25] It concluded that the more direct political participation possibilities available to citizens raises their subjective well-being.[25] 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.[25] Second, the ability for citizens to get involved in and have control over the political process, independently increases well-being.[25]

According to a free market think tank Cato Institute, higher [9][10]

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.[26]


The amount of spare time people have, as well as their control over how much spare time they have, correlates with happiness.[27]

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 appears to be inversely related to levels of stress, allergy, asthma and other chronic conditions.


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[28] Jeremy Bentham believed that public policy should attempt to maximize happiness, and he even attempted to estimate a "hedonic calculus".[6] Many other prominent economists and philosophers throughout history, including Aristotle, incorporated happiness into their work.[1]

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.[29][30] The Inter-American Development Bank (IDB), published in November 2008 a major study on happiness economics in Latin America and the Caribbean ("Beyond Facts: Measuring Quality of Life",

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. ("World Happiness Report 2013",[31]

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.[6][32] 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[6] Allegedly, low-budget tourism and deforestation lead to unhappiness.[6]

After the military coup of 2006, Thailand also instituted an index.[6] The stated promise of the new Prime Minister Surayud Chulanont is to make the Thai people not only richer but happier as well.[6] Much like GDP results, Thailand releases monthly GNH data.[33] The Thai GNH index is based on a 1–10 scale with 10 being the most happy.[33] As of May 13, 2007, the Thai GNH measured 5.1 points.[33] 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.[33]

Australia,[32] China, France[34] and the United Kingdom[35] are also coming up with indexes to measure national happiness.[6] The UK began to measure national wellbeing in 2012.[36] North Korea also announced an international Happiness Index in 2011 through Korean Central Television. North Korea itself came in second, behind #1 China.[37] 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[38]

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.


Some have suggested that establishing happiness as a metric is only meant to serve political goals.[6] Recently there has been concern that happiness research could be used to advance authoritarian aims.[6] 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.[6]

In addition, survey findings can lead to subjective interpretations. For example, a happiness study conducted in Russia during the 1990s[1] 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,[1] 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





References and notes

  1. ^ a b c d e f g h i j k Carol Graham, 2008. "happiness, economics of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract. Prepublication copy.
      • _____, 2005. "The Economics of Happiness: Insights on Globalization from a Novel Approach," World Economics, 6(3), pp. 41-58 (indicated there as adapted from previous source).
      • David G. Blanchflower, 2008. "Happiness Economics," NBER Reporter Online, (2), pp. 7-10. Abstract-linked-footnotes version.
  2. ^ Richard Layard, 2006. "Happiness and Public Policy: A Challenge to the Profession," Economic Journal, 116(510), Conference Papers, pp. C24-C33.
  3. ^ Ulf-G Gerdtham and Magnus Johannesson, 2001. "The Relationship Between Happiness, Health, and Socio-economic Factors: Results Based on Swedish Microdata," Journal of Socio-Economics, 30(6), pp. 553–557. Abstract.
  4. ^ Carol Graham, 2010. "The Challenges of Incorporating Empowerment into the HDI: Some Lessons from Happiness Economics and Quality of Life Research," 54 pages, Human Development Reports Research Paper, 2010/13, United Nations.
  5. ^ Ruut Veenhoven, World Database of Happiness, 2007
  6. ^ a b c d e f g h i j k l m n o p Rana Foroohar, "Money v. Happiness: Nations Rethink Priorities", Newsweek, April 5, 2007.
  7. ^ Bruno S. Frey and Alois Stutzer, 2002. Happiness and Economics: How the Economy and Institutions Affect Human Well-Being, Description and preview. Princeton University Press, &, in the UK, John Wiley & Sons.
  8. ^ See Easterlin paradox for details.
  9. ^ a b c In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? The Cato Institute. April 11, 2007
  10. ^ a b Cato Institute. "About Cato". Retrieved 2010-03-22. 
  11. ^ Explaining Economics
  12. ^ a b Andrew Oswald, A Non-Technical Introduction to the Economics of Happiness, 1999
  13. ^ Holmes, Bob (7 September 2010). "Money can buy you happiness – up to a point". New Scientist. Retrieved 11 September 2010. 
  14. ^ , Money does not make you happy 'but therapy does', The Telegraph, November 20th 2009]
  15. ^ Boyce, C. J., & Wood, A. M. (in press). [Money or mental health: The cost of alleviating psychological distress with monetary compensation versus psychological therapy]' Health Economics, Policy and Law
  16. ^ Rozanne Larsen (15 September 2011). "If money doesn’t make you happy, then you probably aren’t spending it rightf". Journalist's Resource. Harvard Kennedy School's Shorenstein Center and the Carnegie-Knight Initiative. Retrieved 17 August 2014. 
  17. ^ a b Edward L. Glaeser, Joshua D. Gottlieb, Oren Ziv (July 2014). """NBER Working Paper Series: "Unhappy Cities. The National Bureau of Economic Research (NBER). The National Bureau of Economic Research (NBER). Retrieved 17 August 2014. 
  18. ^ The Scientist's Pursuit of Happiness, Policy, Spring 2005.
  19. ^ The Centre for Independent Studies. "About CIS". Retrieved 2010-03-22. 
  20. ^ Radcliff, Benjamin. 2001. "Politics, Markets, and Life Satisfaction," American Political Science Review, 95 (4): 939-952.
  21. ^ Radcliff, Benjamin and Alexander Pacek. 2008. "Assessing the Welfare State: the Politics of Happiness," Perspectives on Politics. 6: 267-277.
  22. ^ Alvarez-Diaz, A., Gonzalez, L., and Radcliff, B. 2010. "The Politics of Happiness: On the Political Determinants of Quality of Life in the American States", The Journal of Politics, 72 (3): 894-905.
  23. ^ , May 2009The Paradox of Declining Female HappinessFederal Reserve Bank of San Francisco,
  24. ^ Layard, R. (2007). Setting happiness as a national goal. The Futurist, 41(4), 37.
  25. ^ a b c d Bruno S. Frey & Alois Stutzer, Happiness, Economy and Institutions, 4-5, 1999
  26. ^ Okulicz-Kozaryn, Adam, 2011. "Does Religious Diversity Make Us Unhappy?" Mental Health, Religion & Culture 14(10), pp. 1063–1076.
  27. ^ Lina Eriksson, James Mahmud Rice, and Robert E. Goodin, "Temporal Aspects of Life Satisfaction", "Social Indicators Research", February, 2007, 80(3), 511-533.
  28. ^
  29. ^ The True Measure of Success -
  30. ^ "Happiness" is not enough- Samuel Brittan: Templeton Lecture Inst. of Economic Affairs 22/11/01
  31. ^ Helliwell, John F., Richard Layard, and Jeffrey Sachs, eds. World happiness report 2013. Sustainable Development Solutions Network, 2013.
  32. ^ a b Andrew Revkin, "A New Measure of Well-Being From a Happy Little Kingdom", The New York Times, October 4, 2005, [hereinafter "New Measure"].
  33. ^ a b c d Thailand's Gross Domestic Happiness Index Falls, Monsters and Critics, 2007
  34. ^ Vandore, Emma (2008-01-14). "'"Inventing the 'Glad Domestic Product. The Star (Toronto). Retrieved 2010-05-04. 
  35. ^ "Happiness index to gauge Britain's national mood".  
  36. ^
  37. ^ 북한의 행복지수는 세계 2위… 남한 행복지수는 152위"라고?""", Chosun Ilbo, 2011-05-27, retrieved 2011-05-28 
  38. ^ 2012 CIW composite index reveals Canadian wellbeing is on the decline, 2012-03-16, retrieved 2013-05-31 

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. 
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