The economics of happiness or happiness economics is the theoretical, qualitative and quantitative study of happiness and quality of life, including positive and negative affects, well-being, life satisfaction and related concepts – typically tying economics more closely than usual with other social sciences, like sociology and psychology, as well as physical health. It typically treats subjective happiness-related measures, as well as more objective quality of life indices, 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,• 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. as well as quality of life. Happiness findings have been described as a challenge to the theory and practice of economics.Richard Layard, 2006. "Happiness and Public Policy: A Challenge to the Profession," Economic Journal, 116 (510), Conference Papers, pp. C24–C33. Nevertheless, furthering gross national happiness, as well as a specified Index to measure it, has been adopted explicitly in the Constitution of Bhutan in 2008, to guide its economic governance.
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.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.
Metrology Given its very nature, reported happiness is subjective.Ruut Veenhoven, World Database of Happiness, 2007 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.
Micro-econometric happiness equations have the standard form: . In this equation is the reported well-being of individual at time , and is a vector of known variables, which include socio-demographic and socioeconomic characteristics.
Macro-econometric happiness has been gauged by some as Gross National Happiness, following Sicco Mansholt's 1972 introduction of the measure, and by others as a Genuine Wealth index. Anielski in 2008 wrote a reference definition on how to measure five types of capital: (1) human; (2) social; (3) natural; (4) built; and (5) financial.Anielski, 2008
Happiness, well-being, or satisfaction with life, was seen as unmeasurable in classical and neo-classical economics. Van Praag was the first person who organized large surveys in order to explicitly measure welfare derived from income. He did this with the Income Evaluation Question (IEQ). This approach is called the Leyden School. It is named after the Dutch university where this approach was developed. Other researchers included Arie Kapteyn and Aldi Hagenaars.
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.
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. In 2002, researchers argued that this relationship extends only to an average GDP per capita of about $15,000. In the 2000s, several studies have obtained the opposite result, so this Easterlin paradox is controversial.See Easterlin paradox for details.
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. Happiness economists hope to change the way governments view well-being and how to most effectively govern and allocate resources given this paradox.Andrew Oswald, A Non-Technical Introduction to the Economics of Happiness, 1999
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 household pre-tax income of $75,000. This particular study by Kahneman and Deaton showed the relationship between experienced happiness and the maximum amount of income at $75,000. Experienced happiness is the happiness received on a daily basis-"the frequency and intensity of experiences of joy, fascination, anxiety, sadness, anger, and affection that make one's life pleasant or unpleasant." The other finding from Kahneman and Deaton is there is no evidence supporting a maximum income to what is called reflective happiness. This data is supported by the use of the Cantrill Ladder, which revealed that there is a direct relationship between income and reflective happiness. This can conclude, to a point, that money does buy happiness.
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 papers 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." The study 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" paper, 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 Ruut Veenhoven claimed 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 for a useful action. However, Johan Norberg of Centre for Independent Studies, a free enterprise economy think tank, presents a hypothesis that as people who think that they themselves control their lives are happier, paternalist institutions may decrease happiness.The Scientist's Pursuit of Happiness , Policy, Spring 2005.
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 Generally, the well-being of those who are employed is higher than those who are unemployed. Employment itself may not increase subjective well-being, but facilitates activities that do (such as supporting a family, philanthropy, and education). While work does increase well-being through providing income, income level is not as indicative of subjective well-being as other benefits related to employment. Feelings of autonomy and mastery, found in higher levels in the employed than unemployed, are stronger predictors of subjective well-being than wealth.
When personal preference and the amount of time spent working do not align, both men and women experience a decrease in subjective well-being. The negative effect of working more or working less than preferred has been found across multiple studies, most finding that working more than preferred (over-employed) is more detrimental, but some found that working less (under-employed) is more detrimental. Most individuals' levels of subjective well-being returned to "normal" (level previous to time mismatch) within one year. Levels remained lower only when individuals worked more hours than preferred for a period of two years or more, which may indicate that it is more detrimental to be over-employed than under-employed in the long-term.