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Economics of Happiness

Raj Nallari's picture

What is the appropriate goal of economic policy? From 1950s to now, this measurement of economic performance has been steadily changing from monetary to non-monetary aspects -- increasing per capita incomes, to broad-based GDP growth, to human development, to sustainable environment, gender equity, development as freedom and empowerment, poverty reduction, equity in opportunities, and more recently, to happiness.

The ‘economics of happiness’ is an approach to assessing subjective welfare which combines the techniques used by economists and psychologists. Up to a certain threshold, increases in incomes result in increases in happiness, but beyond a certain level, further increases in incomes do not lead to higher levels of happiness. More specifically, recent findings from such statistical ‘happiness’ research include the following:

  1. For a person, money does buy a reasonable amount of happiness. But it is useful to keep this in perspective. Very loosely, for the typical individual, a doubling of salary makes a lot less difference than life events like marriage.

  2. For a nation, things are different. Whole countries -- at least in the West where almost all the research has been done -- do not seem to get happier as they get richer.

  3. Happiness is U-shaped in age. Women report higher well-being than men. Two of the biggest negatives in life are unemployment and divorce. Education is associated with high reported levels of happiness even after controlling for income.

  4. The structure of a happiness equation has the same general form in each industrialized country (and possibly in developing nations, though only a small amount of evidence has so far been collected). In other words, the broad statistical patterns look the same in France, Britain and Australia.

  5. There is some evidence that the same is true in panels of people, ie. in longitudinal data. Particularly useful evidence comes from looking at windfalls, like lottery wins.

  6. There is adaptation. Good and bad life events wear off -- at least partially -- as people get used to them.

  7. Relative things matter a great deal.

First, in experiments, people care about how they are treated compared to those who are like them, and in the laboratory will even pay to hurt others to restore what they see as fairness. Second, in large statistical studies, reported well-being depends on a person’s wage relative to an average or ‘comparison’ wage. Third, wage inequality depresses reported happiness in a region or nation (controlling for many variables), but the effect is not large.

Newer measures of well-being are also constructed in some countries using survey questions on happiness, family satisfaction, job satisfaction, work stress, and tiredness. 


Submitted by R-Squared on
True. Money cannot buy you anything. But without money I am very sure you can do nothing. The balance of priority may be different for rich and poor countries. For rich countries, it may be a good time to reflect whether happiness should be put before GDP growth. But for poor countries, I have to say that: don't talk about happiness, you don't have the time or capital to talk about it, not yet. Hard working come first.

Submitted by finblogger on
You should also be discussing the economics of love, or the economic dependence of females on the earning male. In summary, women depend on men for their money, and they bring their looks to the table, where first choice seating is provided to the rich men. Thus, women need looks, and men need money.

International Institute of Management published a policy white paper titled “The American Pursuit of Unhappiness: Gross National Happiness (GNH)”. The paper provides a link between socioeconomic policies, money and citizen’s happiness. The paper provides a macro-analysis or a system view of the external forces that shape and influence the happiness of the individual. It makes reference to results of the University of Michigan's World Values Surveys (WVS) and The New Economics Foundation (NEF) as supporting arguments proving that financial prosperity does not equal happiness. According to Med Yones, the president of the institute, “The ideologies and governments of this century that promised happiness, have left people with more material possessions, but less psychological well-being”… The demands of life in our current socioeconomic system require that we keep running and running with little or no breaks. With increasing life costs, economic demands, and work pressures, most people eventually experience stress, burnout, exhaustion and/or depression. He continues… “Like most world governments, the U.S. Government’s main concern is economic growth: even security, health, education and foreign policies are designed to promote economic growth above all. Governments have metrics to monitor your money: they use metrics such as Gross National Products (GNP) and consumer confidence to monitor and track economic health. Do they use a metric to measure people’s own well-being?” The paper suggests a solution built on the concept proposed in 1972 by Bhutan's King Jigme Wangchuck, who coined the term Gross National Happiness (GNH), to emphasize the holistic values of economic development policies. Wangchuck asserts that economic growth does not necessarily lead to contentment. To improve Gross National Happiness, the institute makes several recommendations addressing 6 main public policy areas: Government, Economics, Work, Media, Education and Environment. The full text of study can be found at: I would also be curious to see the results of the Gross National Happiness Survey sometime this year.

Submitted by Michael B on
Thanks for sharing this article. May I just comment on your topic. I agree that money can buy happiness to some but to other people the reality is money does not necessarily buy happiness. So I think it'll just depend on how the person view happiness as it is. To some, they view happiness as having expensive possessions, but to others happiness isn't just money only. It includes family, socialization, communication and the real value of life. Indeed, in this so called 'Economics of Happiness', money makes the world turn; it is the unfortunate truth of modern human existence. Money, as the saying goes, doesn’t necessarily buy you happiness, although anthropologists have said on numerous occasions that the way money works is not dissimilar to magic in other cultures. Well, it does buy it for some – more rich people report being happy than poor people. Middle class income earners also are less happy, though they earn sufficient income. This is called the Easterlin paradox, for the economist who first published this information. It basically states that in industrial nations with relatively high incomes more people are unhappy than in poor nations. There’s an idea that industrialized nations have more dissatisfaction in daily life due to a lack of connection with others, which is something that money can’t cure.

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