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How have the economist's measured happiness?

How have the economist's measured happiness?

Dear Reader,

As we enter the countdown to the new year we take stock of emotions, happiness, sorrow, and the questions of life well lived. Abiding happiness, and the meaning of life often discount the lessons learnt from the “dismal science” but the insights it offers sometimes make for a counter-intuitive wisdom.

Let us begin with pleasure. Jeremy Bentham (1748-1832) lived a long life and made significant contributions to many fields. The cardinal idea which we ascribe to him today is “utilitarianism”, it sought that individuals maximise personal happiness and minimise pain. The remarkable and one of the most influential economist Alfred Marshall (1842-1924) took this idea and came up with a framework that looked at utility and created consumer behaviour theory that used maximising utility as the first rule. Therefore came the rational consumer who was always willing to pay marginal substitution game where the marginal utility (satisfaction) was equal to the marginal cost.

The prevailing idea around us has been that more money allows us to indulge our fancies and allows us to pursue individual happiness. Or so we would believe. Enter Tibor Scitovsky (1910 - 2002) who in his landmark book The Joyless Economy: The Psychology of Human Satisfaction first published in 1975. Scitovsky was not convinced that more consumption meant more happiness. In his work he broadened our way of analysing happiness by dividing it into two different categories.

  1. Passive Happiness - Predictable pleasures that will make you happy but might not keep you happy. Binge watching a streaming show, ordering cake, or partying. In small doses these make us happy but doing them everyday, they bring a vague, undefined misery. Streaming blues, or death by cake!
  2. Skilled Happiness or Cultured Happiness - Greater happiness is to be found by actively engaging with art, sports, music, or any other activity that engages us but is not dependent on our ability to just pay for it. A great example is video game, one might pay for it, but a good game does not allow you to win just because you paid for it. If you are bad, you are bad. I am going to let Dara O'briain explain skilled happiness with this joke.

Trigger Warning: Strong language, and vivid details might be offensive to some people. Discretion advised.

The insight from Tibor Scitovsky displaces utilitarian calculation, but the displacement does not in any way offer an insight into wealth and happiness. Does more wealth mean more, or less happiness? For our world is predicated on measuring happiness on a scale of material possession. This is where the Swiss economist of happiness Bruno S Frey's work (1941) can help us. In his book Happiness - A Revloution in Economics, Frey argues that any increase in happiness that depended on increase in disposable incomes soon dissipates and creates pressure to work on increasing more and gets into status syndrome effect.

Frey's work is remarkable in illustrating the fact that people are irrational in their behaviour, they constantly over-estimate the utility of higher salaries, while under-estimating the happiness from activities such as friendship, relaxation, and meditation. The ever increasing work hours are a testament to the fact, especially as they are rising after having fallen due to increased productivity.

The paradox of wealth and happiness might be a new area for economics of any shade, it has been a fixture for historians. One such historian who has looked at it with a clinical eye has been Avner Offer (1944), in his work The Challenge of Affluence, can be read as a criticism of free market pursuit of material happiness. Offer looks at the rise of affluence over the last fifty years in the United Sates, and Europe and the problems this creates with respect to obesity, stress, and a general feeling of iniquity. A look at the self reported life satisfaction chart below might offer some value in how the world rates satisfaction.

From utility models of happiness to behavioural models of happiness we have traveled a long road, and yet there is a lot of ground to be covered in measuring happiness. However, one key insight that you can use in the season of cheer is to set your expectation low, for this is a key finding that keeps on popping up, the lower expectation yield highest appreciation. However, grand mothers might have known this all along.

For reading The Behavioural Review!

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