1. Happiness, Money, and Your Heart Andrew Oswald Warwick University * I would like to acknowedge that much of this work is joint with coauthors Nick Powdthavee, David G. Blanchflower, and Rainer Winkelmann.

2. Economics is changing

3. Researchers are studying mental well-being.

4. Economics is changing Researchers are studying mental well-being. We are drawing closer to psychology and medicine.

5. Using random samples from many nations: Researchers try to find what influences the psychological wellbeing of (i) individuals (ii) nations.

6. Today I would like to ask four questions.

7. #1

8. In the 21 st century, should our society’s goal be happiness rather than GDP?

9. #2

10. What actually happens to a person when they get a lot of money (say by winning the lottery)?

11. #2 What actually happens to a person when they get a lot of money (say by winning the lottery)?

12. #3

13. Could physiological measures, like heart rate and blood pressure, be used as proxies for well-being?

14. #3 Could physiological measures, like heart rate and blood pressure, be used as proxies for well-being?

15. #4

16. How should we think about the causes of the current financial crisis?

17. A fundamental question:

18. Is modern society going in a good direction?

19. Are we getting happier?

20. Possibly not…..

21. The Easterlin Paradox

22. Average Happiness and Real GDP per Capita for Repeated Cross-sections of Americans.

23. Life-Satisfaction Levels in European Nations

24. So, could we learn how …

25. ..to make whole countries happier?

26. Preferably not like this…

28. Italy 6 England 0

29. What kind of data do we use in research on well-being?

30. The types of sources British Household Panel Study (BHPS) German Socioeconomic Panel Australian HILDA Panel General Social Survey of the USA Eurobarometer Surveys Labour Force Survey from the UK World Values Surveys NCDS 1958 cohort

31. Various statistical methods

32. Some cheery news:

33. In Western nations, most people seem happy with their lives

34. Some cheery news: In Western nations, most people seem happy with their lives

35. The distribution of life-satisfaction levels among British people Source: BHPS, 1997-2003. N = 74,481

36. But obviously life is a mixture of ups and downs

37. Statistically, wellbeing in panels is strongly correlated with life events..good and bad.

38. Big effects Unemployment Divorce Marriage Bereavement Friendship networks Health [No effects from children]

39. Much of the new research follows people through time. eg. Andrew Clark’s work

40. The unhappiness from bereavement

41. So people adapt

42. But that has a downside….

43. The happiness from marriage

44. And should you invest in a baby?

45. Happiness and children

46. An important question in a modern society is the impact of divorce.

47. Divorce eventually makes people happier

49. Other findings

50. Happiness is also U-shaped over the life course

51. The pattern of a typical person’s happiness through life

52. This holds in various settings

53. For example, we see the same age pattern in mental health among a recent sample of 800,000 UK citizens: [Blanchflower and Oswald, Social Science & Medicine, 2008]

54. The probability of depression by age Males, LFS data set 2004-2006 -0.01 -0.005 0 0.005 0.01 0.015 0.02 19381942194619501954195819621966197019741978198219861990 Year of birth Regression coefficient

55. -0.014 -0.012 -0.01 -0.008 -0.006 -0.004 -0.002 0 0.002 1942194619501954195819621966197019741978198219861990 Depression by age among females: LFS data 2004-2006Q2 Year of birth Regression coefficient

56. Now what about money?

57. The data show that richer people are happier and healthier.

58. But in particular Relative income is what seems to matter to humans. (consistent with Easterlin’s paradox)

59. In terms of economic theory: u = u(y/y*) where y* is what other people earn.

60. For example Di Tella et al REStats 2003, Blanchflower and Oswald JPubEcon 2004, and Luttmer QJE 2005 show income is monotonic in happiness equations for 11 industrial countries.

61. But is there really good causal evidence? One recent attempt (Gardner-Oswald, Journal of Health Economics 2007):

62. Studying windfalls is one approach:-.

63. So what happens to someone who gets a largish lottery win?

64. Remarkably There is no immediate effect on well-being as measured by happiness or financial satisfaction.

65. In our data Strikingly, even the person who receives the equivalent of 1 million US dollars reports a fall, in time t1, in financial satisfaction (ie. satisfaction with the household’s income).

66. But, after three years, a large effect on satisfaction suddenly becomes apparent.

67. Lottery wins raise mental well-being

68. But the puzzle remains

69. There is a delay.

70. But the puzzle remains There is a delay. The longitudinal lottery work finds the effect of a win takes at least two years to show up in mental well-being scores.

71. Where will research head in the future?

72. An interesting border is between happiness and medicine

73. Is it possible that we can find physiological correlates with human well-being? Perhaps to broaden the standard policy goal of GDP?

74. Some of our latest work: Statistical links between the heart and income and happiness.

75. To clinicians High blood pressure is potentially a sign of mental strain and low well-being

76. Some regression evidence

77. When we estimate a life-satisfaction equation LS = f (high blood pressure, control variables) Hypertension enters negatively in a 10,000 sample from NCDS cohort and a 15,000 sample from Eurobarometers

78. But how about high blood pressure as a national measure of well-being?

79. Across nations, hypertension and happiness are inversely correlated (Blanchflower and Oswald, 2008 Journal of Health Economics)

80. Some of our latest work:

81. It is known that heart rate rises under stress.

82. Stress comes in different forms

94. We draw a random sample of 80,000 British individuals, and study their resting heart rates.

95. Pulse: Average heart rate is about 75 beats per minute.

96. Pulse and Money We find that for every extra 40,000 Euros a year, heart rate is 1 beat a minute slower.

97. Heart-Rate Equations (joint work with David G Blanchflower)

98. There are deep connections between happiness, money and the behaviour of the heart.

99. Finally

100. Happiness, herds and the financial crisis

101. Why did we get into the crisis, and how will human happiness be affected?

102. The evidence suggests that when a person is made unemployed:

103. 20% of the fall in mental well-being is due to the decline in their income 80% is due to non-pecuniary things (loss of self-esteem, status..).

104. Countries are happier if they have low unemployment and inflation, and generous welfare benefits. ‘Fear’ depresses happiness. R. Di Tella, R. Macculloch, A.J. Oswald American Economic Review, 2001.

105. In a recession there is a widespread decline in mental well-being, we think because of the generalized insecurity.

106. Herds and keeping up with the Joneses

107. "Men … think in herds; they go mad in herds, … they only recover their senses slowly, and one by one." C. Mackay

108. Extraordinary Popular Delusions and the Madness of Crowds, by Charles MacKay, published in 1841.

109. Far from the Madding Crowd, by Thomas Hardy, published in 1874.

110. Why does it happen?

111. We know that people care about relative things.

112. On a technical note To economists and any mathematicians here:

113. On a technical note To economists and any mathematicians here: I have in mind a class of problem where utility depends on relative actions.

114. Imagine a person is choosing an action a to solve: Maximize u(a) + v(a – a*) – c(a) where a* is what everyone else is doing.

115. Then if v is concave (convex) in status, it is rational to act similarly to (deviantly from) the herd.

116. Subconsciously, humans are frightened of falling behind:

117. Bank lenders and brokers felt they had to match rivals. Home buyers paid extraordinary prices in order to keep up. Money managers -- rewarded on relative performance against other managers -- copied what the others did.

118. When rewards depend on your relative position it will routinely be

119. When rewards depend on your relative position it will routinely be (i)dangerous to question whether the whole group’s activity is flawed (ii) rational simply to compete hard within the rules that govern success.

120. When rewards depend on your relative position it will routinely be (i)dangerous to question whether the whole group’s activity is flawed (ii) rational simply to compete hard within the rules that govern success. Correct dotcom analysts were fired.

121. The pressures for conformity are strong.

122. Herd behaviour is very often natural and individually rational. But it has the potential to be disastrous for the group.

123. To any students here These psychological forces are powerful and will come around again, a number of times, in your lifetime.

124. Now to the housing market, which started our problems.

125. Real house prices in the United States over a century

126. Real house prices in the UK 1975-2006

127. So all the historical data suggested that house prices were unsustainable.

128. Yet -- even two or three years ago near the peak -- few people spoke about the apparent likelihood of a crash.

129. …another kind of herd action.

130. Unfortunately, we do have to have some lean years

131. Some ideas to end:

132. Conclusions #1 In the next century, new measures of human well-being will be required.

133. Conclusions #2 As social scientists, we need to understand better the connections between mental and physical health.

134. Conclusions #3 Heart-rate and blood pressure data have particular potential in policy design.

135. Conclusions #4 Social scientists will, I believe, collaborate more with doctors and epidemiologists.

136. Conclusions #5 Economists need to incorporate herd behaviour more fully into standard models.

137. More broadly on well-being

138. Policy in the coming century may need to concentrate on non-materialistic goals.

139. More broadly on well-being Policy in the coming century may need to concentrate on non-materialistic goals. GNH not GDP.

140. Thank you.

141. Happiness, Money, and Your Heart Andrew Oswald Warwick University Papers downloadable at www.andrewoswald.com * I would like to acknowedge that much of this work is joint with coauthors Nick Powdthavee, David G. Blanchflower, and Rainer Winkelmann.