Over the past few years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

What Can Economists Learn from Happiness Research

Today, as in the past, within a country at a given time those with higher incomes are, on average, happier. However, raising the incomes of all does not increase the happiness of all. This is because the material norms on which judgments of well-being are based increase in the same proportion as the actual income of the society. These conclusions are suggested by data on reported happiness, material norms, and income collected in surveys in a number of countries over the past half century.

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Will raising the incomes of all increase the happiness of all

Subjective well-being (SWB), people's emotional and cognitive evaluations of their lives, includes what lay people call happiness, peace, fulfillment, and life satisfaction. Personality dispositions such as extraversion, neuroticism, and self-esteem can markedly influence levels of SWB. Although personality can explain a significant amount of the variability in SWB, life circumstances also influence long-term levels. Cultural variables explain differences in mean levels of SWB and appear to be due to objective factors such as wealth, to norms dictating appropriate feelings and how important SWB is considered to be, and to the relative approach versus avoidance tendencies of societies. Culture can also moderate which variables most influence SWB. Although it is challenging to assess SWB across societies, the measures have some degree of cross-cultural validity. Although nations can be evaluated by their levels of SWB, there are still many open questions in this area.

Personality, Culture, and Subjective Well-Being: Emotional and Cognitive Evaluations of Life

In recent years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

/pdf/what-can-economists-learn-from-happiness-research-tp056e628i.pdf

What can economists learn from happiness research

Material aspirations are initially fairly similar among income groups; consequently more income brings greater happiness. Over the life cycle, however, aspirations grow along with income, and undercut the favourable effect of income growth on happiness, although the cross-sectional happiness-income difference persists. People think they were less happy in the past and will be happier in the future, because they project current aspirations to be the same throughout the life cycle, while income grows. But since aspirations actually grow along with income, experienced happiness is systematically different from projected happiness. Consequently, choices turn out to be based on false expectations.

Monica Sie Dhian Ho

Papers

Happiness in nations: Subjective appreciation of life in 56 nations 1946–1992.