What can economists tell us about happiness?

Modern Happiness Studiesrefers to empirical research dating back to the 1970s carried out byeconomists and psychologists. Their work was premised on anunderstanding of happiness as “subjective well-being”. Economistsfavoredan objective approach, focusing on what could be externally observedand brushing aside as irrelevant whatever the subject said about hisemotional state and behavior. Psychologists, on the other hand, did the opposite. Theyfollowed a subjective method, considering what the individualaffirmed about his internal state as primary data and relegatingexternal and objectively observable indicators to second place. Sincethen, however, there has been a growing awareness of themethodological limitations on each side; and although economists havenot entirely gotten rid of their objectivist bias, nor psychologists,of their subjectivist one, both groups are increasingly more open tolisten to each other. Partly because of this convergence in subject matter andmethod, it makes sense nowadays to speak of studies on well-being orhappiness, notwithstanding the variety in the researchers’backgrounds.Economists on happiness

After going through the main findings of modern economic and psychological research on happiness, one gets the impression of receiving a list of ingredients and ever so slight clues on how some of the ingredients might mix, but there is no proper recipe. Instead, there is considerable skepticism that the happiness cake may not even be there for the eating at all!
The title of “Fatherof Modern Happiness Studies” is often attributed to the welfareeconomist Richard Easterlin, thanks to his pioneering work “Doeseconomic growth improve the human lot? Some empirical evidence”published in a Festschriftfor Moses Abramovitz in 1974. Following the Britisheconomist A.C. Pigou,Easterlin recognized the difference between happiness or subjectivewell-being and economic welfare; there exists a wider sense of socialwelfare that goes beyond economic welfare measured purely in terms ofGNP. And just like Abramovitz, Easterlin initially embraced thehypothesis that an increase in income does not by itself bring abouta parallel increase in subjective well-being. But not until he wrote the paper was he able to proveit. Basing himself on data sets obtained through Gallup polls andCantril’s scales in nearly 20 countries after World War II,Easterlin discovered that the neoclassical assumption according towhich augmenting one’s opportunity set through income necessarilyentails greater satisfaction is false. Past a certain threshold ofincome, countries with greater per capita wealth do not always reporthigher levels of subjective well-being; at least not in strictproportion to wealth differentials. Apparently, there is a decreasing marginal utility forincome among countries. Neither does an increase in income forindividuals over time necessarily translate into greater subjectivewell-being, due to adaptation. And lastly, in a given a country,richer people are not invariably happier than poorer ones, because ofthe effects of social comparison: a lot depends on whom one compareshimself with.Aside from income, other macroeconomic indicatorscorrelated with happiness include employment and inflation. Oncemore, contrary to neoclassical intuitions, employment exerts agreater net effect on subjective well-being than inflation.Work-satisfaction brings both individual and social benefits, and ismore strongly linked to intrinsic than extrinsic motivations. As forthe effect of inflation on subjective well-being, it depends onwhether it is anticipated or not and whether the rate is slow orgalloping.Following Easterlin’s lead, several economistssurmised that it is not the absolute amount of income, but how onespends it that matters for happiness. At the turn of the previous century, Thorstein Veblenalready warned about the perils of “conspicuous consumption”.Fred Hirsch and Robert Frank probed deeper into this phenomenonthrough the concepts of “positional goods” and “luxury goods”respectively. These provoke instances of wasteful spending orzero-sum games that leave everyone worse off. Indeed, it would bebetter to use resources on goods such as health or social relations,since we never really adapt to their lack or absence, unlike having alarger house, for example, to which we quickly grow accustomed. Ineffect, the neoclassical man does not infallibly know the best way todispose of income. Tibor Scitovsky provided a more thorough critiquethrough the difference between pleasures and comforts. He complainedthat Western societies have been very successful in achievingcomforts, that is, satisfying wants and maintaining arousal levelsnear optimum, but to the detriment of pleasures or joys, whichproceed from experiencing proper stimulation and coming ever closerto optimum arousal levels. The poor in the West are doubly deprived; not so muchbecause of their limited access to material comforts as because oftheir incapacity to enjoy the superior pleasures of culture. Dueinadequate preparation or education, they often turn to “sex, drugsand rock & roll” to relieve their boredom, instead of theinexhaustible novelty and variety of cultural products, ultimatelymore fulfilling or satisfying.Still within the realm of economics, an equally fruitfulapproach to happiness studies has been that of Institutionalists,represented by Bruno Frey and Yew Kwang Ng. Ng called our attentionto the need of a more comprehensive view of happiness than thattraditionally offered by economists (objective) and psychologists(subjective), thereby introducing institutions as the mediatingfactor. Institutions arise from the interactions of individualsamong themselves and with their environment. Frey, for example, hasafforded us with compelling empirical evidence on the positive impactof institutions such as direct democracy and federalism inSwitzerland on the subjective well-being of its inhabitants.Participation and subsidiarity in government seems to correlatepositively with happiness.At the same time,discordant voices pre-empt us on thepossible misuse of “Gross National Happiness” measures bygovernments in lieu of GNP, as a cover-up for unwarranted stateintervention or ideological manipulation.Psychologists on happinessContemporary psychological studies on happiness owetheir development largely to contributions from hedonic psychology(Ed Diener), positive psychology (Martin Seligman, MihalyiCsikszentmihalyi), and evolutionary psychology (David Nettle, DavidGilbert). From the beginning, psychologists have always tended toidentify happiness with pleasant feelings (level 1) or satisfactoryjudgments about one’s overall emotional state (level 2) and avoidedethical evaluations of what a good life should be (level 3).Surprisingly, despite recognizing three different levels in whichhappiness could be discussed, most psychologists consciously limitthemselves to the first two, ignoring the third altogether. There arenumerous studies exploring the demography of happiness, that is, themyriad ways in which subjective well-being may be correlated withage, sex, health, civil status, offspring, race, employment,profession, social class, residence (urban or rural) and so forth,often with counterintuitive results. These findings certainly enrichand nuance economists’ discoveries of how income or wealth affectshappiness, for instance. All of these factors are relevant topsychologists in the measure that they add to or subtract from thedegree of satisfaction an individual experiences.Other than health, there are other heritablecharacteristics such as personality traits (Seligman) which maypredispose one to happiness —self-esteem, a sense of control,optimism and extraversion, to name a few— and they have alsoconstituted an object of study for psychologists.Insofar as positive psychologists concentrate on thehealthy (as opposed to the pathological) psyche, they have taught usthe importance of friendships, love and marriage, faith or belief and“flow” —that is, our abilities rising up to the challenge inwork and play (Csikszentmihalyi)— as sources of satisfaction. Somepsychologists get nervous with this, as it treads perilously close tothe terrain of ethical or value judgements they wish to avoid at allcosts.Perhaps the closest economists and psychologists haveever gotten to each other in happiness studies is through theresearch tradition commenced by Daniel Kahneman and Amos Tversky.Their original interest lay in decision-making under conditions ofuncertainty or risks, leading to reformulations of the way weunderstand choice, value and rationality. Under the name of “Prospect Theory”, they havesuccessfully used mathematical models in analyzing the psychologicalprocess of decision-making, giving rise to psychophysical tendenciesor generalizations. They have shown the non-linearity of decisionweights, the reference-dependent characteristics of value functions,the significance of framing effects and mental accounting, and theneed to distinguish experienced utility from decision utility. Thanksto their efforts, the irreducible subjectivity of psychologicalevents —such as decisions involving happiness— has become lessso, now lending themselves to objective mathematical calculations.The findings of the Kahneman and Tversky team have alsoserved to add muscle to the ideas of Daniel Nettle and DanielGilbert, heavily influenced by evolutionary psychology, regardinghappiness. For Nettle and Gilbert, happiness is something like awill-o’-the-wisp which evolution has programmed all human beings toseek, despite having little substance or perhaps not even existing.That human beings believe and behave as if it did, however, is vitalfor evolution’s purposes. Happiness, as a pleasant future feeling,is the fruit of prospection. Yet the tools with which we wish to conquer it, such asour senses, memory, imagination, reason and emotions, often lead usastray. We project too much of the present into the future, we failto recognize how different things look once they’ve happened andwe’re so often blinded, as many of Kahneman and Tversky’sexperiments show. There’s a regularity, nonetheless, in the errorsof our foresight, which would be good for us to be aware of, althoughthat’s no promise that such knowledge will ever get us to our goal.Aristotle and happiness After going through the main findings of modern economicand psychological research on happiness, one gets the impression ofreceiving a list of ingredients and ever so slight clues on how someof the ingredients might mix, but there is no proper recipe. Instead,there is considerable skepticism that the happiness cake may not evenbe there for the eating at all!The contrast with the Aristotelian attitudetoward happiness cannot be stronger. From the NicomacheanEthics and the PoliticsAristotle teaches us that eudaimonia—happiness as a flourishing human life— is the object of thekingly-craft or science of politics. But politics, as well as itsobject, rests on the twin pillars of ethics and economics. Economicsconcerns itself with the external, material goods necessary forhappiness, while ethics­, with the internal goods, primordiallyvirtue. Human flourishing in the polis, therefore, requires bothmaterial goods and virtues, economics and ethics; it cannot beachieved with just one or the other. And among the different goodsthat constitute human flourishing, Aristotle is careful to establisha hierarchy, such that instrumental goods (material, economic goods)should be subject to goods in themselves (ethical goods or virtues),and these, in turn, to the superior good in itself, happiness as the“common good” or the “final end”.Certainly, Aristotle also expressed some doubtsregarding happiness. He acknowledged that “a single swallow doesnot a summer make” and he asked whether we should wait for aperson’s demise or that of his descendants in order decide if hehad lived a happy life. Likewise, after ruling out a life dedicatedto commerce or trade and a life of pleasure as the best life for man,he had vacillations between a political life in pursuit of honor anda contemplative life of study. But he never grew skeptical about thepossibility of happiness itself, despite the difficulties ofachieving it.Although the greater part of the Nicomachean Ethicsand the Politics deals with the human good and the virtues,they also contain a lot of valuable discussion regarding the role ofour different psychological faculties or powers, the best politicalregime, pleasure, friendship, family and economic well-being. Withthe exception of virtue, therefore, there are numerous overlaps inthe topics covered by Aristotle and modern happiness studies.There may well be some truth behind Ingrid Bergman’swords “Success is getting what you want; happiness is wanting whatyou get”. Only the wanting she referred to is not raw, untutoreddesire, but desire transformed and ennobled by virtue.Alejo José G. Sison is a Business Ethics scholar atthe University of Navarre. His latest book is entitled CorporateGovernance and Ethics: An Aristotelian Perspective (Edward Elgar,2008).

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