The Economics of Happiness

The Economic

sof

Happiness

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with theRe

ader

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HOW TO MAKE

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Ed Diener

Martin Seligman

We finally can do itScientists can measure people’s happiness.

We’ve always meant to do it

So let’s do it!Therefore, happiness should be a primary policy focus.

Happiness is the goal of public policy.

The big ideaUnified,

comprehensive science of happiness

Policies to increase

public happiness

Scientists can measure people’s happiness.

Happiness is the goal of public policy.

Therefore, happiness should be a primary policy focus.

The Philoso

phyof

Happiness

Scientists can measure people’s happiness.

Happiness is the goal of public policy.

Therefore, happiness should be a primary policy focus.

The Psychologyof

Happiness

Scientists can measure people’s happiness.

Happiness is the goal of public policy.

Therefore, happiness should be a primary policy focus.

The Economicsof Happiness

What does economics promise?

What does economics deliver?

What can policy deliver?

The Economicsof Happiness

What does economics promise?

What does economics promise?

Adam Smith1723-1790

1776

WEALTH

HERE THERE

RICH

POOR

RICH

WEALTH

HERE THERE

RICH

POOR

RICH

WEALTH

HERE THERE

RICH

POOR

RICH

NOW THEN

WEALTH

HERE THERE

POOR

RICH

NOW THEN

What makes this possible?

Stuff that might meet our needs

Stuff that does meet our needs

LABOUR

DIVIDING LABOURmakes it more

productive

SMITH’S PIN FACTORY48,000 PINS PER DAY!

SMITH’S PIN FACTORY4,800 PINS PER WORKER!

SMITH’S PIN FACTORY4,800 PINS PER WORKER!

SMITH’S PIN FACTORY4,800 PINS PER WORKER!Draw out the wireStraighten the wire

Sharpen the wireGrind the wireMake the headAttach the headColour the pinPackage the pin

Cut the wire

SMITH’S

SMITH’S PIN FACTORY48,000 PINS PER DAY!

SMITH’S PIN FACTORY48,000 PINS PER DAY!

SpecialisationTime-saving

Technology

EXCHANGEenables us to divide labour

DIVIDING LABOURmakes it more

productive

Autarky

Exchange

Exchange

A way to get what you want

Exchange

A reason to make more & better

Exchange

A reason to make what others want

EXCHANGEenables us to divide labour

DIVIDING LABOURmakes it more

productive

MARKET SIZEamplifies division

of labour

The “Hundred-Mile Suit”

500 hours1.5 years

The “Hundred-Mile Suit”

500 hours1.5 years

Stuff that might meet our needs

Stuff that does meet our needs

LABOUR

Stuff that might meet our needs

Stuff that does meet our needs

EXCHANGEenables us to divide labour

The division of labor

The propensity to

exchange

Stuff that might meet our needs

Stuff that does meet our needs

The division of labor

DIVIDING LABOURmakes it more

productive Productive powers

The propensity to

exchange

Stuff that might meet our needs

Stuff that does meet our needs

The propensity to

exchange

The division of labor

MARKET SIZEamplifies division

of labour Productive powers

EXTENT

OF THE

MARKET

Stuff that might meet our needs

Stuff that does meet our needs

Greater outputsFewer

inputs

LABOUR

HAPPINESS IS …making good

use of your time Greater outputsFewer

inputs WEALTH IS …making your own use of your time

What does economics promise?

What does economics deliver?

What can policy deliver?

OPPORTUNITIESNOT GUARANTEES

What does economics promise?

What does economics deliver?

What can policy deliver?

OPPORTUNITIESNOT GUARANTEES

What does economics promise?

OPPORTUNITIES

NOT GUARANTEES

Gains in wealth should correlate with gains in

happiness

Any such correlation should not be

extremely tight

Not much.

GDP level & happiness?

GDP growth & happiness?

1960s 1970s 1980s 1990s 2000s 2010s

Happiness data collection begins

MORE TIME

MORE PLACES

Sacks StevensonWolfers

Easterlin

Within a country, richer people report greater well-being than poorer people.

1

1

Richer countries have higher per capita well-being than poorer countries.

2

2

GDP level & happiness

Economic growth over time is related to rising well-being.

3

3

GDP growth & happiness

There is no evidence of a satiation point.

4

There is no evidence of a satiation point.

4

Global satisfac

tion

Income & GDP

CorrelationCausati

on

vs

“I don’t actually think it’s the income per se. I think it’s the opportunities that income provides. When people have more income they are more likely to say they get treated with respect during their day; that they have choice over how they want to spend their day; that they have good-tasting food to eat. All of this describes a life where, as you have more income, you make choices to put yourself in a better situation.”

CorrelationCausati

on

vs

It would be a mistake “to look at our studies and think that if you are offered two different jobs, the higher-paying job is going to lead to greater well-being.”

MONETARY BENEFITS+ NON-MONETARY BENEFITS

COMPENSATION

CorrelationCausati

on?

HAPPINESS IS …making good

use of your time Greater outputsFewer

inputs WEALTH IS …making your own use of your time

What does economics promise?

What does economics deliver?

What can policy deliver?

OPPORTUNITIESNOT GUARANTEESOPPORTUNITIESNOT GUARANTEES

What does economics promise?

“So, how good are we at using those opportunities?”

OPPORTUNITIES

Are people really that rational?

Does trade really make people happier?

Behavioural economics

“Errors of affective

forecasting”

Common …but not

unavoidable!

“Errors of affective

forecasting”

“How happy will this choice make

me?”

“How happy will that choice make

me?”

Stuff doesn’t make us as

happy as we think it will.

EXPERIENTIALPURCHASE

MATERIALPURCHASE

SLOWER ADAPTION

Higher reported happiness

Memory elevates mood

Where we focus while shopping

What will matter more later

HAPPINESS IS …making good

use of your time Greater outputsFewer

inputs WEALTH IS …making your own use of your time

HAPPINESSINCOME

MONETARY BENEFITS+ NON-MONETARY BENEFITS

COMPENSATION

HAPPINESSINCOME

MONETARY BENEFITS+ NON-MONETARY BENEFITS

COMPENSATION

HAPPINESSINCOME

MONETARY BENEFITS+ NON-MONETARY BENEFITS

COMPENSATION

TIME

HAPP

INES

SWhat is the ideal ratio of income to happiness?

What is the ideal ratio of income to happiness?

HAPPINESSINCOME

What is the ideal ratio of income to happiness?

HAPPINESSINCOME

What is the ideal ratio of income to happiness?

HAPPINESSINCOME

Forgone gains from trade

HAPPINESSINCOME

“Taking away a greater percentage of income from the rich will affect their happiness little.”

Ed Diener

HAPPINESSINCOME

MONETARY BENEFITS+ NON-MONETARY BENEFITS

COMPENSATION

TAXES

What is the ideal ratio of income to happiness?

HAPPINESSINCOME

Forgone gains from trade

Differences between people

What is the ideal ratio of income to happiness?

HAPPINESS

Preferences

Opportunities

Plans

Priorities

INCOME

Alternatives

Commitments

Ed Diener

HAPPINESSINCOME

Ed Diener

Isn’t it also democratic to grant each individual the right to decide whether his or

her ratio is worthwhile?

HAPPINESSINCOME

The ChoicePolicy is about

OUTCOMES

Happiness is the outcome that policy is meant to provide.

Better living through policy change.

Policy is aboutOPPORTUNITIES

Happiness is the opportunity that policy is meant to provide.

Better living through cultural change.

What does economics promise?

What does economics deliver?

What can policy deliver?

OPPORTUNITIESNOT OUTCOMESOPPORTUNITIESNOT OUTCOMESOPPORTUNITIESOUTCOMES?

What can policy deliver?

OPPORTUNITIESOUTCOMES?

The Economic

sof

Happiness

#3

Dinners

with theRe

ader

www.theseymourreader.com

HOW TO MAKE

A woollen coat