3-Some Uses of Happiness Data in Economics (28-2)

3-Some Uses of Happiness Data in Economics (28-2) - Journal...

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Some Uses of Happiness Data in Economics Rafael Di Tella and Robert MacCulloch E conomists are trained to infer preferences from observed choices; that is, economists typically watch what people do, rather than listening to what people say. Happiness research departs from this tradition. Instead, hap- piness researchers have been particularly interested in self-reports of well-being, which may be as simple as an answer to a question with the general form: “Are you very happy, pretty happy, or not too happy?” Hundreds of thousands of individuals have been asked this kind of question, in many countries and over many years, and as reviewed in Frey and Stutzer (2002), researchers have begun to use these data to tackle a variety of questions. Richard Easterlin (1974) was the ±rst economist to make prominent use of happiness data when he reported that despite increases in personal income over time, people were not reporting an increasing level of happiness. This paper begins with a recap of Easterlin’s puzzle and the various attempts that have been offered to resolve it by questioning either the interpretation of the happiness surveys or the underlying economic assumption of what economists should include in utility functions. The paper then discusses other examples of research using happiness surveys: to evaluate whether public policies have positive effects on social welfare, like taxes on cigarettes; to determine the welfare costs of in²ation and unemploy- ment; and to investigate determinants of political economy like whether the happiness of Europeans is more affected by inequality than the happiness of Americans. y Rafael Di Tella is Professor, Harvard Business School, Harvard University, Cambridge, Massachusetts. Robert MacCulloch is Professor, Imperial College, London, United Kingdom. Their e-mail addresses are ^ rditella@hbs.edu and ^ r.macculloch@imperial.ac.uk , respectively. Journal of Economic Perspectives—Volume 20, Number 1—Winter 2006—Pages 25–46
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Economic Growth without Happiness? Most utility functions assume that higher levels of current personal income lead to higher utility. In 1974, Richard Easterlin introduced happiness data into economics and observed that their basic pattern was at odds with this assumption. SpeciFcally, Easterlin (1974) observed that happiness responses are positively cor- related with individual income at any point in time: the rich report greater happiness than the poor within the United States in a given year. Yet since World War II in the United States, happiness responses are ±at in the face of considerable increases in average income. ²igure 1 reports the average happiness response for repeated cross-sections of different Americans between 1975 and 1997 (with the three categorical answers assigned the numbers 1, 2 and 3). ²igure 2 presents the cross-section results for the United States in 1994. A similar pattern has been
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This note was uploaded on 01/27/2009 for the course ECON 4626 taught by Professor Zax during the Fall '08 term at Colorado.

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3-Some Uses of Happiness Data in Economics (28-2) - Journal...

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