Warwick Think Tank

Happiness economics is a new and emerging field of economics that caught the attention of economists in the 20th century. Despite its recent development, it lured many economists and a wide range of research has been conducted on the topic and is continuously being studied. Two psychologists, Brickman and Campbell, published the paper entitled ‘Hedonic relativism and planning the good society’ in 1971. This paper concluded that wealth does not lead to happiness, therefore, bettering factors such as income or wealth does not improve the general well-being of the public. These results came as a shock, especially to economists, when these “paradoxes of happiness” began to emerge and become apparent (Bruni, 2004). In addition, in his article, Richard Easterlin, in 1974, discussed the “Easterlin paradox” which argues that an increase in income does not result in an increase in happiness of the individual (Crespo, 2017).

 

Despite the above-mentioned findings, in the field of economics, there is an on-going debate on the measure of happiness to measure economic performance. There are arguments that happiness data over time is an extremely insensitive measure of welfare. Besides, there are ethical issues raised in terms of the invasion of privacy of the life of individuals by the political class as they’re required to do surveys asking them questions about their personal well-being and happiness. This is argued to potentially lead to a loss of liberty in the public (Johns, 2007).  Still, it can also not be denied that such studies would enable happiness economics to quantify life-satisfaction and therefore enable economists to consider emotional health and well-being alongside the monetary factors. Individual happiness data is often collected through extensive social surveys where the happiness economists use values in their questions; such as requesting individuals to rank their levels of happiness. In this way, they are able to use the data to formulate policies, therefore, making happiness economics a factor to consider when making practical decisions about the economy (Davies, 2015). 

 

Happiness was not a factor much considered by economists until the above-discussed discoveries were made. Money was always seen as an indicator of growth, development and success and therefore it was presumed that it led to happiness. The primary indicator used to measure national growth was the GDP (which is still used today). The Gross Domestic Product, or GDP, measures economic performance by adding up all the goods and services produced within a country where the degree of economic prosperity is considered as an indicator of the levels of happiness of the residents of that nation. The use of GDP is also a reliable method of measuring economic progress since the data is unlikely to be manipulated. This is because the data relies on concrete measurements and therefore results cannot be influenced by individual interpretations, as is the case with happiness data (Weimann, Knabe & Schöb, 2015). However, the concept of the paradoxes of happiness turns it imperative to factor in well-being and life-satisfaction when considering national well-being and growth. Evidence points to a clear need to consider happiness independent of GDP when assessing the performance of nations and their economies. For example, when studying happiness in a single country at a single moment in time, there seems to be a clear and robust correlation between the GDP of the country and the happiness of that nation's residents. However, this trend is not strong when studying different countries' data together. Indeed, it does not always seem to be the case that people in poor countries are less happy than those in richer countries (Bruni, 2004). For example, in a 10 to 12 year-long study of 17 Latin-American countries between 1994 and 2006, there was no trend found between the annual change of financial satisfaction and the annual growth rate of GDP of the country. This trend, or rather the lack of it, due to the Easterlin paradox only holds when the data is measured over a period of several years. This is because in a shorter period, happiness indeed correlates with a stronger GDP but this happiness does not last long. (Richard A. Easterlin et al., 2010).

 

The notion of studying happiness, and happiness per se, are very abstract concepts, therefore, challenging because economists like to deal with numerical data whereas Johns and Ormerod (2007) argue in their book that happiness is more about personal values and dispositions rather than economic policies. It is further argued that individual happiness increases when individuals are better off than others in terms of income or wealth (or both) (Johns and Ormerod, 2007). This indicates that happiness is an inherently selfish aspect of human disposition, therefore, the use of happiness data to formulate economic policies would not be beneficial in any respect. This is because economic policies are formulated with the intention and interest of benefitting the majority of people whereas, through monetary means, happiness is something that can only be provided to the very few. Furthermore, it is found that economists are not interested in the term ‘happiness’ or its philosophical interpretations. They aim to quantitatively measure happiness rather than to define it. This is often done through extensive social surveys by asking people to answer questions such as “How happy are you?” (Bruni, 2004). Whilst this might enable economists to escape the complexities of the philosophical world of happiness and life-satisfaction, if economists do not understand the meaning of happiness, they would find themselves unable to use the happiness data effectively to benefit society. 

 

Psychologists, on the other hand, use the expression 'happiness' with more precision. Some psychologists (i.e. Kraut, 1979) define happiness in terms of having pleasant experiences. This conceptualization of happiness suggests that a person needs to be satisfied with life and have less of a discrepancy between what their life is like and what they want it to be (Veenhoven, 1991). However, the eudaimonic view of happiness proposes that happiness is related to goals and achievements (Waterman, 1993). Under this concept is flow, which Csikszentmihalyi (2009) suggests is a state of being where people experience happiness due to engaging in a task balancing abilities and challenge and requiring investing a lot of attention. As with many abstract concepts, it is evident that defining happiness is contentious. Therefore, what one research classes as happiness may not correspond with what another does. Furthermore, happiness is narrowed down to smaller elements which may not reflect the subjective experience of happiness broadly. However, the overall benefit of defining happiness is that it takes such a large concept and makes it measurable.

 

To conclude, the answer to whether happiness can be measured lies in the fundamental definition of the word ‘happiness’. It needs to be understood what happiness is, from an economic, psychological and philosophical perspective, and whether it is the ultimate emotion that results in better life-satisfaction. Additionally, economists need to develop robust techniques to gather and analyse happiness data such that they get a clear and concise picture of the general well-being and are able to use it to formulate policies. Further research is ongoing in this field and is evidently required to understand whether happiness economics could lead the way after GDP becomes too vague to explain the degree of prosperity of countries with their increasingly complex economies. 

 

 

 

 

References:

 

Bruni, L. (2004) Civil Happiness: Economics and Human Flourishing in Historical Perspective. London, Routledge. 

 

Crespo, R. F. (2017) Economics and Other Disciplines: Assessing New Economic Currents. London, Routledge. 

 

Johns, H. & Ormerod, P. (2007) Happiness, Economics and Public Policy. Research monograph (Institute of Economic Affairs) ; 62. London, Institute of Economic Affairs. 

 

Kraut, R. (1979). Two conceptions of happiness. Philosophical Review, 87, 167-196 

 

Nakamura, J., & Csikszentmihalyi, M. (2009). Flow theory and research. Handbook of positive psychology, 195-206.

 

Davies, W. (2015) The Happiness Industry: how the government and big-business sold us well-being. London, Verso.

 

Veenhoven, R. (1991). Questions on happiness: Classical topics, modern answers, blind spots. Subjective well-being: An interdisciplinary perspective, 2, 7-26. 

 

Waterman, A. S. (1993). Two conceptions of happiness: Contrasts of personal expressiveness (eudaimonia) and hedonic enjoyment. Journal of personality and social psychology, 64(4), 678 

 

Weimann, J., Knabe, A. & Schöb, R. (2015) Measuring happiness: the economics of well-being. Cambridge, Massachusetts, MIT Press. 

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Easterlin, R. A., McVey, L. A., Switek, M., Sawangfa, O. & Zweig, J. S. (2010) The happiness-economics paradox revisited. Proceedings of the National Academy of Sciences. 107 (52), 22463-22468. Available from: doi:10.1073/pnas.1015962107.