Economics of happiness

what are the two approaches that could maximize individuals happiness?

'nudging' happiness through policy design meant to influence peoples choices teaching happiness through experimental learning

what are some examples of how surveys have collected life evaluation measures

(World Values Survey) - Taken all together, how happy would you say you are: very happy, quite happy, not very happy, not at all happy?" life satisfaction - On the whole are you very satisfied, fairly satisfied, not very satisfied, or not at all satisfied with the life you lead?" (Eurobarometer) Cantril ladder gallup world poll. - "Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?"

what are the two main concepts of the Easterlin Paradox ..

1. Individual level analysis- A. in a point in time, people who are richer are happier by using the cross section analysis of a GSS survey B. Apply cross section analysis to LS of 1941 birth cohorts as income increases over 28 years .. Conclusion: prediction didnt hold, when a person's income and LS is tracked over a time period, the relationship is flat 2. Country level analysis - A. Use cross section relationship between 14 countries in the 1960's. B. Apply cross section to a poor country that experienced unprecedented growth between 1962-1987 Conclusion: prediction doesn't hold, Japan had increase in GDP but LS was still flat. the positive relationship between national income and life satisfaction found at a point in time across countries does not hold in time series

what policies can be made based on the magnitude of association between unemployment and LS

1. expansive monetary policy to lower interest rates so its easier to borrow money, to reduce anxiety and instability, and borrow what you need. 2. increase unemployment benefits to help with basic necessities like healthcare

give two reasons of why we care about other factors that affect utility

1. policy making 2. analysis of well being and growth In economics we study how to allocate scarce resources for unlimited needs - pursuing maximum utility. In order to achieve max utility we must first understand the different components that play a part in the utility function for life satisfaction. We have found there there are many factors that play a role in life satisfaction apart from income including: personality, time, socio-demorgraphic and personal characteristics

explain Frey and Sutzer views on direct democracy.

A direct democracy may increase LS because they conform better to the wishes of the population, and government is more efficient. also the existence of direct political participation rights raise citizens happiness because they derive procedural utility. it feels like they are doing something and being listened to. this utility is not felt by foreigners.

how are Easterlin's findings on men and women LS explained. and what is the evidence?

American women start adult life happier than men with higher satisfaction in the family and financial life domains Over the life cycle, the advantage women enjoy in the family and financial domains slowly decreases, leading to a "cross-over" in happiness for men and women women are generally as happy or happier than men The LS gender gap holds true for developing or developed countries and cannot be explained by development, political, or religious preferences Evidence comes from his study in 2010

describe the Easterlin paradox and why it is a paradox

At a point in time happiness varies directly with income both among and within nations, but over time happiness does not trend upward as income continues to grow while at a point in time income and happiness have a direct correlation, looking at the same data over a period of time there is no direct correlation between income and happiness. Instead the happiness is flat remains flat even while income increases over time.

how do you respond to critique of cultural biases

Comparability across nations - people are consistent with how they answer LS variables across countries, LS changes responds in same ways in countries that are going through similar conditions : transition countries Alternative(objective) measures of well being - equally affected by national measurement issues Globally, LS can be described by economic well being, social support, and life expectancy. (GDP, social networks) Other factors affecting LS Freedom to make life choices, generosity, absence of corruption LS differences btw top and bottom 10 countries can be explained by the personal and public domains High consistency in how people rate their lives in different countries

what is difference between domain analysis and micro- econometric analysiss

Domain analysis : LS = fn(Econ sat, job sat, health sat, fam sat) Domain analysis uses domain satisfaction as explanatory variables micro econometric analysis uses objective life circumstances Microeconometric analysis : LS = fn(income, married, divorced, widowed, education, employment status ...) they are just different approaches to analyzing a similar question, which is, what determines well-being as captured by life satisfaction.

What data did Easterlin use to create his paradox ? How was newer data affected this paradox ?

Easterlin used cross section in a GSS survey: applied cross section to track PEOPLE born 1941-1950 as their income increased over 28 years. average income increased from 12,000 to 27,000 Predicted: LS should move from 2.17 to 2.27 Did same thing across countries. tracked 14 countries in the 1960s. tracked poorer countries that experienced unprecedented GDP growth between the 60s-80s. Prediction: since GDP rose from 22% to 77% LS should follow from 6.5 to 7.7 Conclusion: prediction was wrong, LS was flat as income increased New data bolsters Easterlin paradox

In countries across the world, the three main aspects of LS include:

Economic well-being (GDP per capita) Social Support Healthy Life expectancy

what are intrinsic life circumstances?

Gender and ethnicity

Helliwell and his multivariate regression studies regarding happiness with corruption, freedom, social support, and generosity say what?

Happiness & corruption: Happiness is negatively associated with corruption Happiness & freedom to choose: Happiness is positively associated with freedom to choose Happiness & social support: Happiness is positively associated with social support Happiness & generosity: Happiness is positively associated with generosity

how do you respond to each objection of happiness?

Happiness cannot be measured- There is growing availability of self-reported measures of SWB that can be used in economic and policy analysis. Happiness is of no value in and of itself- Happiness and pleasure are distinctive and two different concepts. Happiness is strongly associated with other well-being factors such as good health. Happy people live longer and display more pro-social behaviors. The pursuit of happiness spoils by fostering consumerism- In the long-term, increasing material well-being by rising incomes does not lead to higher happiness levels. The pursuit of happiness would have to focus on improvements in non-material life domains such as health, family life, and workplace satisfaction. the pursuit of happiness justifies a-moral means- Freedom and respect for human rights are associated with higher happiness. The pursuit of happiness would focus on democratic values such as increasing freedom and promoting public choices

explain how happiness can be used to design policies in key areas. what are the implications of using happiness as an objective in this area?

Health- current policy uses Quality Life Adjusted Years (QALYFS). SWB can be used to supplement QALFYS or to measure them better. SWB implications: suggest spending more money on mental health focus on preventive treatments Transport- current policy uses cost-benefit analysis. SWB implications: promote active travel and collaborative consumption could provide social and time congestion benefits Education- current policy assesses educational effect through test score and incomes SWB implications: shift resources to quality not quantity of education tailor career advice based on SWB measures to promote balanced life styles instead of just income Employment- SWB analysis could increase efforts to prevent and reduce unemployment through educational and training programs Policies to promote a more balanced work-life environment

what does empirical evidence say about the association between parenting and LS who were the authors? does this association differ over time? ( cross section and time series )

In cross sections, results are mixed but generally a negative "parenting gap" In general, a negative "parental SWB gap" has been observed in cross sectional studies between LS and parenting Time- series: Myrskyla and Margolis - for all parents, happiness increases significantly one year before birth, and then returns to pre-birth original levels long term it increases for old people cross section - herbsta and ipshur there is a negative parenting gap in happiness, over time for people in certain age categories LS increases then returns to a stable line above prebirth levels.

what is the relationship between national income and LS in time series ?

It is not the same as cross sectional. when a country's income and LS are followed over a period of time, increasing income does not lead to increasing LS

Time series data provides ... what is the relationship between income and LS ...

LS and income at different points of times It is flat... positive relationship found in cross sectional is not held in time series

Cross sectional data provides ...

LS and income levels for different subjects at same point in time Within a country - do richer people have higher LS than poorer people ? Across countries - do countries with higher GDP have higher aggregate LS than countries with lower?

how do you argue the criticisms of subject well being measures

LS is a reliable measure of well being, methodological issues can be fixed by survey design 1. reliability - adequately stable for the same individuals over time sensitive to changing life circumstances similar for different individuals under the same circumstances 2. validity - people who report to be happy, display pro social behavior LS measures reflect other well being measures including income and health Biases are random and typically do not affect aggregate measures Distortions can be fixed by surveys if they ask right questions

what does set point say about influence in life circumstances of happiness ?

LS is set at a baseline level not related to life circumstances. Different socio-demographic approach to LS Says differences in well-being are attributed to changing objective life circumstances, rather than constant individual personality traits

which concepts explain the change in "transition countries"? and what is the final level of happiness

Loss aversion explains the drop in GDP therefore a decline in LS at the beginning. As GDP increases people hedonically adapt their LS. There is a downward jump in well-being due to a loss and a 1 unit increase in log-income is accompanied by 0.05-SD increase in LS while a 1 unit decrease in log-income accompanied by 0.10-SD decrease in LS as income increases, hedonic adaptation allows LS to stay stable while during the losses people weren't able to adapt. LS may not exceed the level of LS at which the transition had taken place because of hedonic adaptation.

what did the time series show for unemployment and LS for those unemployed ?

Lucas study: used longitudinal data from GSOEP to test if unemployment could change long term trajectory of LS. 1st period - baseline 2nd period - 1 year before unemployment 3rd period - years after unemployed 4th period - adaptation, years after unemployment but employed never got back to the baseline, unemployment significantly reduces LS and supports cross sectional data

main aspects captured by LS

Material standard of living (income, consumption) Health (physical and mental) Family and companionship (social support) Job or work situation (occupation, labor market conditions

differences in older and younger workers that get promoted ?

Older employees may feel a higher level of LS bc if they have been working for a long time then they may feel more accomplished and management may require less busy work which outweighs the stress of having more responsibilities. younger employees may feel that the positive effects fade away faster due to higher stress and they are still adjusting to their specific job

which Helliwell study had the strongest correlation to higher levels of happiness? and what is the magnitude.

Social support has the strongest association with happiness. The effect on LS of a 10% increase in social support is equivalent to the doubling GDP per capita.

what does Richard Thaler say about this libertarian paternalism critique? what are the misconceptions?

Thaler says people dont make rational decisions. Misconception one is that paternalism can avoided. Planners are always forced to make some decision. May have to decide what attribute to support first or decide to pick at random. Misconception two is that paternalism always involves coercion. Design of decisions that are inevitable is not coercive. 'Nudging' does not force individuals to behave in their best interest, but it does encourage this type of behavior.

what is the association between age and happiness and why are some u-shaped and some m-shaped/hill-shaped? Blanchflower and Oswald

U-shaped- holding all circumstances constant, looks like U changes in aspirations over life cycle older people learn to reduce the negative events on well being selective survival of happier(probably does not affect until later age) U shaped you include control variables age and LS M-shaped(europe) and hill shaped in america- M shape you allow other life variables to come into changing First part of the M-Shape is explained by life transitions Example •Before age 30, young adults start cohabiting/get married and begin raising children. •Between ages 30 and 50, the (possibly financial) pressures of parenting and union dissolution exert a negative effect on LS. •Between ages 50 and 75, retirement increases LS. •After 75, poor health and widowhood negatively affect LS.

name three contributions that contribute(positively or negatively) to job satisfaction according to Deneve et al paper.

Work Life Balance- give you more time to spend with family or hobbies leads to higher LS increases LS having to worry about work or being too tired after work negatively affects LS Job Content - workers in jobs that have high varieties of work and require learning new things positively affects LS Promotions and Social Interactions- are job characteristics that promote positive affects on LS. promotions are temporary higher levels of LS. in the long run if it is too stressful it can outweigh the positive effects.

what is the evidence that supports either runs from happiness to having a partner, or support runs from having a partner to happiness, and which one is correct?

Zimmerman and Easterlin- having a partner is better for happiness Once cohabitation and socio economic differences are taken into account, theres no selection effect of happier people into marriages even after controlling for cohabitation, marriage has a short run "honeymoon" effect on LS Following the honeymoon effect, LS decreases back to the cohabitation level, which is significantly higher from baseline Union formation (both marriage and cohabitation) have a long-lasting positive association with LS due to social or other effects.

what is the effect of LS and corruption ? helliwell study

a decrease in corruption increases LS a 10% decrease in corruption is a problem is equivalent to 20% increase in GDP per capita

what is loss aversion.. what is endowment affect...

a loss in income is considerably more noticeable than an increase of income at the same amount. losses loom larger than gains downward "sticky" aspirations - people adapt to an increase of income so LS is constant, but when income falls people don't adapt so LS falls helps explain short term relationship in income and LS

what are Easterlin's findings on men and women LS in a life cycle?

american women start with higher LS levels in family and financial over the life cycle, women LS levels in family and financial slowly decrease and men slowly increase "crossing over". men end up with higher LS levels. in older age, men have higher average LS than females. cross-over holds for family and financial but not health

what is effect of LS and freedom?

an increase in freedom would increase LS 10% increase in freedom is equivalent to a 40% increase of GDP per capita

what is effect on LS and social capital?

an increase in social support would increase LS a 10% increase in social support is equivalent to doubling the GDP per capita strongly positively correlated with LS

how would you design the world happiness survey ?

avoid any bias question at beginning, ask happiness question first keep ordering the same dont ask double negative questions stay consistent on high to low and low to high questions, keep it one way all the time

what are some objective well being measures and what are their advantages and disadvantages

cardinal measures - GNP GDP advantages: based on economic theory, has set guidelines for what makes you happy. marginal utilities etc. Social indicators: life expectancy, education level, human development index disadvantages: dont know what is more important. some people value some things more than others.

what did Zweigs research find ?

controlling for socio-demographic and economic variables leads to a higher pure female to male life satisfaction differential which is not explained by international differences in development or religion did a study where she regressed LS on gender including demographic, social , and economic control variables

what is libertarian paternalism ?

core idea is to design policies that encourage behavior that promotes individuals well being while leaving the final decision to individuals

why are objective measures of well being weak

decision utility may not equal experienced utility. cant predict future tastes, things change altruistic behaviors cant be explained by objective measures relative well being can be better than objective well being

what is the difference between decision utility and experienced utility with examples.

decision utility- predicted utility that can be inferred from observed choices ex. choose chocolate over apples bc i like chocolate experienced utility - the pleasure and pain actually felt after making decision ex. chocolate gave me hives so i choose apple

what is social comparison

determine self worth based on what others around you have explains long term Easterlin bc as everyone starts to earn more, LS stays the same over time if you increase income of one individual it may lead to higher LS but if you increase everyones with the same amount LS is the same.

how do Frey and Sutzer's findings affect happiness and do they conclusively lead to higher happiness

direct democracy and federalism are complements. political systems and institutions such as referenda and local autonomy matter for LS higher levels of happiness may precede, not follow, democratic governments History shows that democratic governments do not necessarily make people happy they have a significant association, and the positive association holds after fixing for the effects of income

what is the measure of direct democracy and local autonomy explained by Fred and Sutzer?

direct democracy: an index is constructed to measure the extent of direct democratic possibilities Index reflects the average direct democratic rights in period from 1970 to 1996 1 is a high barrier 6 is a low barrier. barriers are in terms of : a) the necessary signatures to launch an instrument (absolute and relative to the number of citizens with the right to vote), b) The legally allowed time span to collect the signatures, and c) The level of new expenditure per head allowing a financial referendum. conclusion: direct democracy index has a positive correlation with LS the marginal effect of direct democracy index is as big as the effect of living in the second lowest income category local autonomy: index constructed using responses from chief local administrators regarding their perception of local autonomy( scale 1-10) conclusion: local autonomy index has a positive correlation with LS

Results for LS for widows, divorced when marriage is happy, divorced when didn't have a happy marriage who responds worse to widowhood

divorced when marriage was happy has negative long term effect divorced when marriage was bad has a long term positive effect widows have the highest negative response rather than divorced/separated the negative association between union dissolution could be because of isolation on health and well being

what is domain analysis in explaining global life satisfaction?

domain analysis is used to study the extent to which global well-being can be seen as the net outcome of reported satisfaction with life circumstances. life domains are groups of circumstances representing specific aspects of life

what are the implications of the set point model for evolution of happiness over time?

events can move people above and below baseline but will always return to this stable point

what are four typical objections to using happiness as a policy objective?

happiness can't be measured happiness is of no value itself the pursuit of happiness spoils by fostering consumerism pursuit of happiness justifies immoral means

Assuming nudging is considered an appropriate type of government intervention, how could the happiness literature be used in the design of "nudges"?

health is an essential life domain that promotes well being "nudges" to promote healthy behaviors could increase LS job satisfaction relies more on work-balance than salary increase focus on importance of work-life balance in job counseling use glassdoor

what is the main determinant of utility in economics?

income

which component of the Easterlin paradox can be explained with hedonic adaptation concept ?

increase in income has temporary effects: either cause we adapt or because our expectations for LS rise.

what is association between unemployment and LS for individuals and entire societies what were the authors for these associations

individual: Frey/Sutzer did a study that showed a negative association in cross sectional experiment. showed that reaction to unemployment was strong and significant, even after reemployment LS is still lower than before being unemployed society: DiTella study used eurobarometer data from 12 countries to show that there are significant negative effects to society as a whole, even to those employed.

is the view of income being the main utility a complete or incomplete view ?

it is incomplete because over the short term income affects LS but over the long term it has no association

what does a "transition" mean in term "transition country"

it means that the country went through a transition from communism to capitalism

how does social support line up with the four domains of happiness and well being?

it relates to your family and work life not really your economic and health domains family- having a partner in life makes people happier because it provides stability, support networks and self esteem. a support network including your spouse's family. work- promotions, social interactions, and a supportive work environment leads to higher levels of LS. office environments leads to friendships and social groups which promotes higher levels of satisfaction

what are life domains and what are some examples ?

life domains are groups of circumstances representing specific aspects of life Economic domain: material conditions such as income or ownership of goods. Family domain: marital status, number/age of children, etc. Health domain: physical and mental health. Work: type of work, unemployment, job characteristics, etc.

which concept better describes the actual change of LS during a recession, social comparison or loss aversion

loss aversion better describes the actual change in LS because it doesn't really change for social comparison but does for loss aversion. LS never achieves how high it was before the decrease in LS.

what is an example that demonstrates aspirations for people over time?

lottery winners are no happier before and after winning and job satisfaction appears to be more related to changes in workers conditions not their seniority/income levels

life goals over the life cycle... material and non material what does it suggest?

material - change in life goals leads to adaptation, so you want more and more but LS stays the same non material - pursuit of some non material goals increase LS which could prove that set point theory is wrong marriage - constant life goals imply a lack of adaptation which could explain the relationship between marital status and LS, after they get married there is nothing that will make you happier suggests that the "set-point" may not be set but could change in response to changing life circumstances in non-material life domains

difference between objective and subject well being ?

objective well being is measured in ordinal or cardinal measures. there is a definite measure that qualifies your well being ex. gdp, gnp. subjective well being relies more on honesty and self awareness. ex. body language, social level, pulse rates etc.

how is loss aversion and hedonic adaptation similar?

people adapt hedonically to an increase in income but not to a decrease in income(loss aversion) both have to do with explaining the short term declines

ways that subjective measures can be collected and which is the most effective

physiological and biological factors - pulse rate social behaviors - friendliness and activity level non verbal behaviors- smiling good posture surveys- most effective and commonly used

what are extrinsic life circumstances ?

political systems and social capital

explain the neoclassical model of utility used to analyze consumers decisions. what are the assumptions?

preferences( constraints) are constant and do not depend on current level of consumption given constant preferences, people can perfectly predict how changes in life conditions affect well being income is main contributor to Utility

what is set point theory? what are positive and negative traits ?

proposes that personality is the main determinant of LS, implying that LS should be constant at baseline level positive: extraversion, self esteem, optimism, perceived control negative: neuroticism

what are the differences between set-point theory and micro econometric analysis ?

set point proposes that personality is the main determinant of LS, implying LS should be constant at that level "analysis of life" or micro econometric analysis- analysis of life circumstances such as marital life, status, health, and work situation have a strong association with LS

which component of the Easterlin Paradox can be explained with loss aversion?

short term fluctuations between income and LS can be explained happiness varies with changes at a point in time, as income increases people adapt and LS stays the same, but decrease in income people don't adapt and LS falls

difference between the short term and long term association between LS and income

short term: when income falls aspirations remain high, leading to a decline in LS, if income recovers then aspirations recover as well long term: in long-term, as income increases so do aspirations(bc hedonic adaptation) which leads to no change in LS

which component of the Easterlin paradox can be explained with the social comparison concept?

social comparison can explain why over a extended period of time, people have stable LS levels because as everyone starts to have higher incomes, social comparison kicks into play and you don't have more than your peers.

what method did Switek and Easterlin use to explain the M pattern of age and LS in europe?

step 1. estimate the overall happiness in age groups step 2. estimate the association between each life transition and change in LS(holding other life transitions constant) step 3. predict the LS and evolution using only information on consecutive life transitions only conclusion: LS experiences mild increase between age 22 -30 and corresponding mild drop between 30-40

what and who are studies that approve and disprove set point?

support- 1. Costa et al 1987: Found that there was no main effect of time on total well-being (TWB), evidence for the stability of levels of well-being in adulthood 2. Diener et al 1999: Personality traits exhibit some of the strongest relations with SWB, genes may be partly responsible for these relations against - Costa et al: Health Concern was higher and Positive Affect lower among older age groups, but there were also a cross-sectional decline with age in Negative Affect Rietveld et al: Find that only 5-10% of single-question subjective well-being measures (such as LS) can be explained by a person's genetic predispositions

what is hedonic adaptation

tendency where humans return to a relatively stable level of happiness despite recent spikes helps explain that at a point in time, higher income can lead to higher LS, but over time, person's LS does not increase with an increase to income

Hagerty and Veenhoven concluded.... is there any concern for their findings?

that contemporaneous correlation positive in 14 out of 21 countries. lagged correlations show little or no implications of casualty between income and LS, there fore, increasing national income does go with increasing national happiness yes there are methodological concerns

what is the mainstream critique of libertarian paternalism?

the mainstream critique is that it's manipulative and disempowering to the individual

what is micro econometric analysis ?

the relationship between LS and life circumstances is studied through micro econometric analysis uses regression to compare z(circumstances and personality traits), LS, and income

Cross sectional comparisons- within a country ... across other countries ...

within a country - at a point in time, people with higher incomes within a given country reported higher levels of LS, but may not hold at higher levels of income Same relationship holds when socio-demographic and socio-economic variables are introduced At a point in time, people in richer countries have higher LS.

whos happier men or women? blacks or whites?

women are slightly happier in beginning, men end up being happier and "cross over" whites, but difference narrows as they grow older bc white LS starts to decline towards the end and blacks increase, which narrows the gap