The Economics Of Happiness: Measuring Wellbeing

The Economics Of Happiness: Measuring Wellbeing Image by Lola Artland

Article written by Maria Fonseca and Paula Newton

Since the surge of the field of positive psychology, during the nineties, more interest was placed in scientifically measuring and understanding what brings us fulfilling happiness. Many prominent economists and philosophers throughout history, including Aristotle, addressed the importance of happiness. What is happiness or rather “eudaimonia” as the greeks would say, which meant “flourishing of the spirit” ?  What is the importance of happiness and how to create it ? These and many other questions were asked by Aristotle in his work on ethics and politics.

If until the end of last century no real interest existed to look for the links between economics and happiness, economics slowly awakened for this emergent field in the past decade.

Quote by Aristotle

What is Happiness Economics ?

According to scholar Carol Graham  The economics of happiness is an approach to assessing welfare which combines the techniques typically used by economists with those more commonly used by psychologists. It typically treats such happiness-related measures, rather than wealth, income or profit, as something to be maximized. Happiness Economics is the study of what makes people happy. It takes in concepts of positive and negative, life satisfaction, well-being and quality of life among others, commonly linking happiness with economics and subjects like sociology and psychology. The subject focuses on increasing happiness related measures instead of a focus on wealth as an indicator of success. Economists dedicated to this emergent area have even invented a fromula: Micro-econometric happiness equations have the standard form: 

In this equation “W” is the reported well-being of individual, which is “i” at time (“t”) and (“x”) is a vector of known variables, which include socio-demographic and socioeconomic characteristics.

Carol Graham is a known scholar and a fellow of the Brookings Institute, that has written various books linking economics and happiness. One of her latest books questions the credibility of the methods and data gathered, when trying to measure such a subjective issue as the one of “happiness”.

Challengers to the field of Happiness Economics suggest that happiness is too subjective to be measured effectively, especially across different cultures. However, Happiness Economists have sought to find ways to measure this well despite the challenges that exist. In particular, quality of life and well-being are important areas of focus in this regard. Happiness Economists challenge the idea that wealth creates happiness, and in particular researchers have found that while higher earners may have greater satisfaction with life, the emotional wellbeing of people only increases with money up to a point and not beyond that point.

As Christian Kroll (2014) explains, writing for The Guardian, people working in the field of Happiness Economics undertake surveys to determine how satisfied people really are. The goal of Happiness Economics is to understand what really makes people happy rather than assuming it is money. It is a relatively new area of study, as Happiness Economics barely existed prior to the millennium development goals. Kroll points out however; one important issue with the Happiness Economics debate thus far is that it has over-focused on what makes people happy in the richer nations. One resounding finding as a result of the studies so far is that money has not made people any happier, and increased GDP since the Second World War has not increased general happiness.

Maybe you are wondering what the point of all this is, but according to Kroll understanding happiness can be built into development policy to help people to build happy nations. Kroll outlines his own study that was carried out across 70 countries and looked at data relating to 100,000 people. His study was published by the Institute of Development Studies, and interestingly noted that what makes people happy from country to country deviates quite a lot. In Kroll’s mind at least, this means that:

“Customised development goals should take into account what makes people in each country happy rather than strive for a one size fits all model such as the MDGs (millennium development goals).”

Kroll explains that in particular his study shows that factors that were previously considered fundamental to the happiness of all people vary in importance a lot between countries. These three factors are income, health and education. This has important implications for development, especially in these specific areas. This means that the preferences that people from different countries have regarding these three areas needs to be used along with quantitative data about the way in which they live in order to be able to really change lives and make a significant difference to people’s wellbeing. Customised development goals have an important role to play in this regard, according to Kroll, and understanding what people want and what will really make them happy needs to be built into such goals so that success can be achieved.

Happiness Economics has unearthed a range of strange and unexpected findings. For example, a study carried out in Russia in the 1990s showed that increasing unemployment led to increased wellbeing in both employed and unemployed people. This was explained as being a consequence of reduced expectations of people and people were less likely to feel as bad about their own set of circumstances when their family and friends were unemployed. Other work by academics has suggested in an article of the same name that if money does not make you happy then you are not spending it right. In this research it was found that being happier with money revolves around spending it on experiences rather than materialistic goods, spending small amounts on temporary pleasures, focusing on paying now and consuming later and donating money to charities rather than keeping it all to yourself.

Do you know what really makes you happy? What is important to you in achieving your own wellbeing and satisfaction with life? Maybe it is about time you found out….

If you are truly interested in objectively learning more about economics and happiness, you can watch the following video, which is a lecture given by Carol Graham, the most prominent scholar in this interesting flourishing field.