Happiness Research: State and Prospects

Abstract

This paper intends to provide an evaluation of where the economic research on happiness stands and in which interesting directions it might develop. First, the current state of the research on happiness in economics is briefly discussed. We emphasize the potential of happiness research in testing competing theories of individual behavior. Second, the crucial issue of causality is taken up illustrating it for a particular case, namely whether marriage makes people happy or whether happy people get married. Third, happiness research is taken up as a new approach to measuring utility in the context of cost-benefit analysis.

Keywords:

• causality
• cost-benefit analysis
• happiness research
• life satisfaction approach
• marriage
• selection
• subjective well-being
• terrorism

Notes

 1 Many aspects of the criticism of traditional economics are developed in what is called “behavioral economics” or “economics and psychology” (see e.g. Camerer et al. 2003; Frey and Stutzer 2001; Rabin 1998). An introduction to the concept of procedural utility is provided by Frey et al. (2004a).

 2 A promising new approach, the day reconstruction method (DRM), looks at emotional characterizations of daily life experiences (Kahneman et al. 2003)

 3 Subjective well-being is an attitude consisting of the two basic aspects of cognition and affect. “Affect” is the label attached to moods and emotions. Affect reflects people's instant evaluation of the events that occur in their lives. The cognitive component refers to the rational or intellectual aspects of subjective well-being. It is usualy assessed with measures of satisfaction. It has been shown that pleasant affect, unpleasant affect and life satisfaction are separable constructs (Lucas et al. 1996).

 4 A survey about various measures of subjective well-being is provided by Andrews and Robinson (1991).

 5 But it should be noted that this skepticism coexists with well established propositions in the literature on income inequality and poverty, taxation and risk that accept implicit cardinal utility measurement and interpersonal comparability.

 6 The average real (in 1999 US$) cigarette tax in the United States is 31.6 cents in the sample (Gruber and Mullainathan 2002, p. 14).

 7 There are, of course, many more causality issues or reasons why observed correlations do not reflect a causal link. Important examples are omitted variables generating spurious correlations.

 8 We draw on our research more fully described in Stutzer and Frey (2003).

 9 There is also a selection explanation for the pattern. Many people might only marry if they expect to experience a rewarding relationship in the future. They predict their future well-being as spouses based on their current well-being. Therefore, the last year before marraige becomes the last year, because the couples experience a particularly happy time in their relationship.

10 See Carson et al. (2003) for an elaborate and state-of-the-art contingent valuation study; they estimate individuals' willingness to pay to prevent another Exxon Valdez type oil spill.

11 Exemplary contributions are Blomquist et al. (1988) and Chay and Greenstone (2001). The former estimate compensations for intraurban and interregional differences in amenities in the labor and housing market, the latter investigate the effect of air pollution and successfully address the identification issues hedonic market studies are normally plagued with.

12 We are, of course, aware that other factors matter too for the observed difference and might even exclusively determine the gap.

13 Recent further examples are, for instance, Clark (2001) on the scarring effects of unemployment, Di Tella et al. (2004) on macro-economic conditions, Frey and Benz (2003, 2004) on independence, Pezzini (2003) on abortion rights, Luttmer (2004) and Stutzer (2004) on relative income and Stutzer and Lalive (2004) on social work norms. Recent methodological contributions are, for example, Winkelman (2002) on interdependencies in well-being at the family level and Ferrer-i-Carbonell and Frijters (2004)on estimation techniques with fixed effects for ordered happiness data.

14 See www.economist.com/copenhagenconsensus, and the book edited by Lomborg (2004).

15 Collier and Hoeffler (2004) who wrote the background paper on “The Global Incidence of War”, take, as they write themselves, the “obviously arbitrary figure of $1000 to a DALY” (p.6).