Dismal science no more

Written by Saurabh Bhargava | Updated: Jun 27 2009, 02:39am hrs
The path to happiness is paved, depending on whether you survey poets or parents, by a secure and well-paid job, moral and political freedom, or perhaps even romantic love. Yet, only recently have psychologists and normally well-grounded economists begun to weigh in on the lofty question of what makes people happy. Their attempts to identify the determinants of well-being have led to many intriguing insights that may offer guidance for adventurous policymakers.

Economists have long resisted the study of happiness, or hedonics, because its study is fraught with methodological complication. Traditionally, they inferred well-being by looking at changes in more visible markers such as income or consumption. Documenting changes in happiness across people and over time is, in comparison, quite daunting. Why not simply ask individuals how happy they are The usual worry is that individuals may not even be aware of their own well-being and the scale used by one may not be commensurable with that used by another.

However, some scientists have recently turned to the laboratory where measuring happiness is more manageable. One can code facial expressions to infer positive and negative emotions, or compare the ease with which a subject is able to recall positive and negative life events. New technology even permits psychologists to observe what may be bodily cues of well-being such as specific areas of brain activation or the speed with which the skin conducts electric currents. One outcome of this research has been to validate certain survey measures of well-being as surprisingly reliable. A handful of economists have since applied the disciplines impressive statistical tools towards uncovering the demographic and behavioural causes of happiness.

One basic question is whether individual happiness can improve over time For the most part, people are healthier, much wealthier, and have more choice than forbearers plagued by disease, poverty, and oppression, let alone the absence of TV, U2 concerts, running water, and antibiotics. Yet, are people happier than they were 50 or 1,000 years ago Imagine that tomorrow, you win the lottery or a car crash robs you of mobility. Surveys of those who have experienced such highs and lows suggest that happiness and sadness ensue, but only for a few months before a (near) complete return to baseline well-being. Psychologist Daniel Gilbert has even demonstrated people are maladaptively poor at forecasting their reaction to the futureif you want to accurately predict your future well-being, just ask your friends.

If it is the case that people are anchored to a biologically pre-determined level of well-being, happiness may not be determined by love or professional success, but by draws from a lottery at birth similar to the draws that determine height, attractiveness, and the ability to perfectly discern pitch.

Fortunately, many happiness scholars have rejected the rather unsettling possibility of a hedonic treadmill in which every windfall is followed by reflexive adaptation. Everyone, it seems, has at least some hope of nudging their perceived well-being higher over time. Our best guess is 10 to 50% of variation in happiness is not fixed at birth.

So what do the happiness equations tell us about determinants of well-being First, happiness tends to improve with income, but benefits are concentrated among those who are so poor they lack lifes basic requirements. Above a minimal threshold, money does not seem to buy happiness. While income has diminishing returns, financial uncertainty, signalled by high inflation, unemployment and volatility of the business cycle, reduces well-being.

Second, education and occupational choice tend to be correlated with happiness. This is especially true in developing countries. Third, the number and richness of ones social connections, including the stability of ones marriage, contribute to higher well-being. Positive affect tends to be a contagion of sorts. If your friends (or friends of friends) are happy, you are likely to be as well. Sadness, thankfully, appears less infectious.

Assuming that we can measure well-being, and divine the factors that shape it, what prescriptions can we extract from hedonics While the rhetoric of hope gained quite a bit of traction in the most recent US political election, a political platform featuring a smile-index seems less tractable.

However, one need only look at Bhutan for a glimpse of hedonically enlightened public policy. While most governments are judged largely on their ability to improve objective indices measuring national income, crime and health, the King of Bhutan introduced a broad index of national well-being in 1972, which he dubbed Gross National Happiness. The cheery focus of the Bhutanese appears to have paid dividends: Bhutan ranked 8th amongst 178 countries in a recent ranking of the worlds happiest nations. This is remarkable given its modest per capita income.

The prevailing research suggests that, if maximising well-being is an objective, governments should devote more resources to reducing unemployment, supporting education, lowering inflation, and smoothing business cycles than traditional adherence to maximising national income would dictate. One can construe the data as advocating an even more paternalistic, almost communitarian, set of social policies including support for flexible and shorter work hours, extended parental leave, and disincentives for divorce particularly for marriages including children.

A drawback is that while national income provides a transparent and (more or less) value-neutral undertaking that any third party can monitor, targeting less well-defined metrics leaves open the possibility of political or ideological designs being dressed as the pursuit of happiness. And a focus on well-being does nothing to alleviate fundamental tradeoffs between managing the average level of well-being and how its distributed across thepopulation. Yet if the research continues to evolve, and to answer its many reasonable critics, then the reputation of economics as the dismal science may finally be up for revision.

The author is adjunct faculty in economics at the University of Chicago, Booth School of Business