The economics of happiness Jorge Guardiola Wanden-Berghe Universidad de Granada Bremen, June 2013

German Constitution, 1949 Article 56 [Oath of office] On assuming his office, the Federal President shall take the following oath before the assembled Members of the Bundestag and the Bundesrat: “I swear that I will dedicate my efforts to the well-being of the German people, promote their welfare, protect them from harm, uphold and defend the Basic Law and the laws of the Federation, perform my duties conscientiously, and do justice to all. So help me God.”

Scheme 1.Understanding happiness 2.What makes people happy (in general, maybe you too) 3.Happiness and prosperity of nations

1. Understanding happiness

Universalism vs relativism Different conceptions of happiness. Different cultures. Different moments of time. Could we find an universal idea of happiness?

Paul Ekman

Kinds of happiness (SWB) Many kinds: Mariano Rojas’ classification: – Hedonic – Emotional – Cognitive – Mystical Contradictions could hold. Examples:

Methods to measure well-being Direct question – Life satisfaction – Domain satisfaction Day reconstruction method Life stories Brain scanner

Direct question In general terms, are you satisfied with your life? Would you say that you are....? Cantril’s ladder Likert scale Did you experienced any emotion yesterday? Yes or no

SWB and domains of life It captures all aspects of well-being, assuming that life consist in an aggregate construction of some specific domains that determine satisfaction Happiness Income Work Health Couple Family This is bottom-up, but top down also exist

Disadvantages Adaptation (Sen), hedonic treadmill Order of the question influences answers Circunstantial and mood factors (Schwartz) – Weather – Finding money before answering

Kahneman et al., 2004

Life stories Write your own bibliography Observe the frequency in the use of certain words – Related with positive emotions (cheerfulness, happiness and the like) – Related with negative emotions (fear, guilt, constrain and the like)

Scanner Brain as a map for positive and negative emotions

2. What makes people happy (in general, maybe you too)

What brings happiness? Sonja Lyubomirsky

Correlates of happiness Age Gender Marriage Employment Income

Does money bring happiness?

Relationship income happiness Far from being perfect Diminishing marginal returns. More important when income is low Basic needs satisfaction Interactions: – Culture, psychological traits – How money is devoted (efficiency)

Starting point

Material needs and satisfactors Hunger (food) Water (access to the resource, pipes) Sanitation (pipes, water) Health (medicines, hospitals) Refugee (house, electricity) Education (school, notebooks) Play opportunities (toys)

Being seduced by the market Marcuse (1964): Real needs and false needs (publicity and manipulation) Galbraith (1977): Needs can be created (idem, dependence effect) Keynes (1963): Absolute and relative needs (You can satiate the first, but the second depends on others)

Seducing example “For the man that have discovered us needs that we did not know we had”

Scientific evidence Focusing illusion (Kahneman) American dream (Kahneman) Comparison with others (Duesenberry, Frank) Satisfactors vs maximizers (Schwartz) High income and lack of ethic (Piff, Frank) Loss aversion and marginal returns

3. Happiness and prosperity of nations

Development indicators Gross National Income Human Development Report Other, more new (including happiness): – Happy Planet Index (NEF) – OECD Better Life Index

GDP Monetary value of production in a given place and time Its increase can cause or produce: – Inequality and poverty – Environmental destruction – Slavery and/or child work – A war or a genocide – Weapon production

Better life index

GDP/Income-happiness Easterlin paradox Paradox of unhappy growth Paradox of happy peasants and miserable millionaires

Easterlin paradox In the cross section there is a positive relationship income happiness However, longitudinal studies find that this relationship does not hold, at least in rich countries

Easterlin Paradox: UK

Easterlin Paradox: US

Paradox of unhappy growth Negative or insignificant relationship between satisfaction with lfe and economic growth

Possible explanations Comparison effect Gap aspirations-achievements Greater consumism and working hours Lack of relational goods Flaws on providing public goods Inequality

Happy peasants and miserable milionaires In spite of material deprivation, cases in India, Tibet, Bangladesh, Mexico and Kenia have high satisfaction. Economic theory is wrong? Adaptation, lack of comparison Should we idealize poverty?

What makes you happy?