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Happiness Economics is the study of a country's well-being by combining economists' and psychologists' techniques. It relies on more expansive 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.[1]

Worldwide happiness

The Satisfaction with Life Index. Green = Happiest > Blue > Purple > Orange > Red = Least Happy; Grey = Data not available

The Satisfaction with Life Index is an attempt to show the average self-reported happiness (subjective life satisfaction) 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 to GDP or GNP. Some studies suggest that happiness can be measured effectively.[2][3]

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 is a concept introduced by the King of Bhutan as an alternative to GDP but there is as yet no exact definition.

Happiness and GDP

Typically market health measures such as GDP and GNP have been used as a measure of successful policy. However, although on average richer nations tend to be happier than poorer nations, beyond an average GDP/capita of about $15,000 (most of the world's nations have less than this), studies indicate the average income in a nation makes little difference to the average self-reported happiness.[4][5] Other criticize this, pointing out that since life expectancy has continued to increase in nations wealthier than this, often attributed partly to economic growth allowing for factors such as better health care, Happy Life Years have continued to increase.[6] It has been argued that happiness measures could be used not as a replacement for more traditional measures but as a supplement.[7]

What makes people happy? — Determinants of happiness

Given its very nature, happiness is subjective.[8] It is difficult to compare one person’s happiness with another.[9] It can be especially difficult to compare happiness across cultures.[9] 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.[9]

Abraham Maslow theorized that human happiness is the outcome of meeting a set of needs. He listed these in order of priority, leading to a pyramid called Maslow's hierarchy of needs. The set of needs includes physiological, safety, love/belonging, esteem, and self-actualization needs. These needs can be used as a basis for evaluating the overall happiness level of individuals.[How to reference and link to summary or text]

Micro-econometric happiness equations have the standard form: .[9] 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..[9]

Other quantities have been suggested as making people happier.[10] Money correlates with happiness, however at a diminishing rate with how much that amount of money increases.[10][9][11] One study, when corrected for social status, showed no correlation between income and happiness. The amount of spare time people have, as well as their control over how much spare time they have, also correlates with happiness.[12] More generally, there is a significant correlation between feeling in control of one's own life and happiness levels. Losing one's job can be a great source of unhappiness.[13]

Children tend to decrease parental happiness, at least until they leave for college, although in terms of a broader life narrative the opposite may be true.[10] Married people are happier, but it is unclear if this is due to the marriage or if already happy people tend to marry.[10]

Marriage, children and how happy they make us, provide a perfect case study for these questions. 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 (so much for the empty-nest theory). 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. Happiness politicians know that welfare states need more kids to plug the coming labor shortage — but should they actively encourage something that will make people unhappy, at least in the short run? Likewise marriage—married couples test happier, but it's unclear if that's because happy people marry. Whether or not politicians back policies that support marriage and having kids doesn't really matter, because people embrace these happiness myths quite willingly. "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.[10]

One concern has always been the accuracy and reliability of people’s responses to happiness surveys.[10] 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.[10]

A study conducted at the University of Zurich suggested that democracy and federalism bring well-being to individuals.[14] It concluded that the more direct political participation possibilities available to citizens raises their subjective well-being.[14] 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.[14] Second, the ability for citizens to get involved in and have control over the political process, independently increases well-being.[14]

Higher economic freedom, as measured by both the Heritage and the Fraser indices, correlates strongly with higher self-reported happiness.[15]

Given the subjective nature of the response to happiness surveys, different approaches have looked at other factors in an individual's life; for example happiness being inversely related to levels of stress, allergy, asthma and other chronic conditions. By this measure, the happiness of many developed nations in the world has gone down over the past 50 years.

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 [1] Jeremy Bentham believed that public policy should attempt to maximize happiness.[10] Many other prominent economists and philosophers throughout history, including Aristotle, incorporated happiness into their work, however the idea was before its time..[9]

Several countries have already developed or are in the process of developing a gross national happiness index (GNH).[16][10] His Majesty King Jigme Singye Wangchuck of Bhutan, is credited with creating the first such index.[16] In 1972, the King was concerned about the problems afflicting other developing countries which were focused on economic growth.[16] While a work in progress, the example set by Bhutan is starting to catch on in other parts of the world.[10] 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[10] Allegedly, extensive tourism and deforestation lead to unhappiness.[10]

After the military coup of 2006, Thailand also instituted an index.[10] The stated promise of the new Prime Minster Surayud Chulanont is to make the Thai people not only richer but happier as well.[10] Much like GDP results, Thailand releases monthly GNH data.[17] The Thai GNH index is based on a 1-10 scale with 10 being the most happy.[17] As of May 13, 2007, the Thai GNH measured 5.1 points.[17] 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.[17]

Australia, Canada[16], China, France[18] and the United Kingdom are also coming up with indexes to measure national happiness.[10]

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 subsistence level, its effectiveness as a generator of well-being is greatly diminished.[19] This paradox has been referred to as the Easterlin paradox.[9] It appears that this paradox results from a "hedonic treadmill."[19] This means, aspirations increase along with income and after basic needs are met, relative rather than absolute levels of income influence well-being.[9] Happiness economists hope to change the way governments view well-being and how to most effectively govern and allocate resources given this paradox.[13]

Criticism of Happiness Economics

Some have suggested that establishing happiness as a metric is only meant to serve debatable political goals.[10] Recently there has been concern that happiness research could be used to advance authoritarian aims.[10] 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.[10]

In addition, survey findings can lead to subjective interpretations. For example, a happiness study conducted in Russia during the 1990s[9] 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[9], 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

External links


  • Bruni, Luigino; Pier Luigi Porta (2005). Economics and Happiness: Framing the Analysis, pp. 384, Oxford University Press.
  • Van Praag, Bernard; Ada. Ferrer-i-Carbonell (2004). Happiness Quantified: A Satisfaction Calculus Approach, pp. 352, Oxford University Press.

References and notes

  1. "A New Measure of Well-Being From a Happy Little Kingdom". (html) New York Times. URL accessed on 2007-01-08.
  2. The True Measure of Success -
  3. "Happiness" is not enough- Samuel Brittan: Templeton Lecture Inst. of Economic Affairs 22/11/01
  4. Bruno S. Frey and Alois Stutzer Happiness and Economics, Princeton University Press, December 2001; published in the UK by John Wiley & Sons.
  5. In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? The Cato Institute. April 11, 2007
  6. In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? The Cato institute. April 11, 2007
  7. A bigger economy doesn't always buy happiness -
  8. Ruut Veenhoven, World Database of Happiness, 2007
  9. 9.00 9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 9.09 9.10 Carol Graham, The Economics of Happiness, 3, 2005.
  10. 10.00 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 Rana Foroohar, "Money v. Happiness: Nations Rethink Priorities", Newsweek, April 5, 2007].
  11. Richard Easterlin, Explaining Happiness, 2003
  12. Lina Eriksson, James Mahmud Rice, and Robert E. Goodin, "Temporal Aspects of Life Satisfaction", "Social Indicators Research", February, 2007, 80(3), 511-533.
  13. 13.0 13.1 Andrew Oswald, A Non-Technical Introduction to the Economics of Happiness, 1999
  14. 14.0 14.1 14.2 14.3 Bruno S. Frey & Alois Stutzer, Happiness, Economy and Institutions, 4-5, 1999
  15. In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? The Cato institute. April 11, 2007
  16. 16.0 16.1 16.2 16.3 Andrew Revkin, "A New Measure of Well-Being From a Happy Little Kingdom", The New York Times, October 4, 2005, [hereinafter "New Measure"].
  17. 17.0 17.1 17.2 17.3 Thailand's Gross Domestic Happiness Index Falls, Monsters and Critics, 2007
  19. 19.0 19.1 Explaining Economics

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