Happiness economics is the theoretical, qualitative, and quantitative study of happiness and quality of life, including positive and negative effects, well-being, life satisfaction, and related concepts – typically tying economics more closely than usual to other social sciences, such as sociology and psychology, as well as physical health. It typically views subjective happiness-related measures and the more objective quality of life indices as something to be maximised rather than wealth, income, or profit.
Since the late twentieth century, the field has grown significantly, thanks in part to the development of methods, surveys, and indices for measuring happiness and related concepts and the quality of life. The findings on happiness have been described as a challenge to economic theory and practice. Nonetheless, the pursuit of gross national happiness and a specific index to measure it was explicitly enshrined in Bhutan’s Constitution in 2008 to guide the country’s economic governance.
Understanding the Happiness Economics
Whereas standard economics uses income and consumption or other observed behaviours to demonstrate the immeasurable concept of utility, or the satisfaction of material wants and needs, happiness economics uses surveys and related methods to elicit people’s level of satisfaction. Happiness economics employs econometric analysis to determine which factors contribute to or detract from human well-being and quality of life.
Happiness economics is a relatively new field of study. Mainstream economics has long relied on the concept of utility, or the pleasure that people derive from satisfying their wants and needs. However, because an external observer cannot directly observe or measure the subjective, internal experience of happiness, joy, or felt unease, economists rely on observing people’s actions to reveal what provides utility.
Economists use observable proxies, mostly market prices in terms of money, to determine how much utility people derive from various economic goods or activities. The basic idea is that measuring how much money people are willing to pay or accept for various goods and services on the market demonstrates how much utility they expect to receive from those things. It also means that economists frequently use indicators such as a person’s income or total consumption to determine their total utility.
Happiness economics seeks to address some of the shortcomings of the traditional approach by attempting to measure utility, or happiness, more directly. Traditional utility theory has a major flaw. It cannot account for people’s enjoyment of goods, services, activities, or amenities that occur outside of markets because it is based on observed market prices, quantities, and incomes.
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It means that the impact on human happiness of anything that is not or cannot be traded on the market will be difficult, if not impossible, to quantify. It also assumes that observed market prices and quantities capture the full value of goods and services traded on markets, which is not always the case. Those who study happiness economics argue that it is critical to investigate factors affecting the quality of life in addition to traditional economic studies such as income and wealth.
Happiness economics seeks to address these issues primarily by asking people to complete surveys in which they rank or score the happiness they receive or reveal how much they are willing to pay or accept for things that do not have explicit market prices. They also look at indices that track the quality of life in various countries, focusing on access to health care, life expectancy, literacy levels, political freedom, GDP per capita, social support, cost of living, and pollution levels.
Happiness Economics has been criticised.
Happiness economics has several major issues in terms of theory, method, and application. Economists have traditionally dismissed survey research methods as untrustworthy. Surveys are known to be prone to a variety of biases. For one thing, respondents can respond to surveys in any way they want, with no actual consequence or trade-off required, which frequently results in paradoxical results.
A classic example is those survey respondents will routinely respond that they support increasing total public service spending while also opposing tax increases to pay for that increased spending. The traditional economic approach avoids these problems by measuring utility through observed market phenomena, where people have real skin in the game and must acknowledge scarcity and make trade-offs.
Happiness economics research is frequently redundant or duplicative of simply measuring human well-being using more objective measures such as income, GDP per capita, or direct observation of economic institution quality. Happiness economics research has generally found that people in wealthier countries with higher-quality institutions tend to be happier than people in poorer countries with lower-quality institutions. A straightforward comparison of self-reported life satisfaction and real GDP per capita reveals a strong, positive correlation that has remained consistent.
It implies that referring to GDP per capita already measures happiness and that attempting to directly measure happiness is a waste of time.
