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Economists and psychologists battle over what makes us happy

Monday, October 4th, 2010

There has been a lot published recently on the source of happiness and what constitutes the good life, with many articles focusing on levels of personal income that mark tipping points, such as the recent claim that we need $75,000 to be happy.

In this week’s Early Edition of the Proceedings of the National Academy of Sciences (open access), Bruce Headey and colleagues describe how happiness is also being explored in terms of fundamental differences between psychological and economic theory:

Research on life satisfaction or happiness used to be a minor branch of psychology, became a major branch, and then in the past decade has attracted huge interest among economists. Some of these economists now use satisfaction measures as proxies for the outcome which economic agents are assumed to maximize—namely, individual utility. But the assumptions and findings of psychologists and economists are contradictory.

In one corner, psychological theory:

The dominant theory in psychology is probably still set-point theory…[which] holds that long-term adult happiness is stable—it has a setpoint—because it depends mainly on genetic factors, including personality traits molded and expressed early in life. It has been shown that major life events can temporarily change happiness levels, but that most people revert to their previous setpoint within a year or two. The theory can be summarized by saying that, “We are all on a hedonic treadmill”.

…An obvious implication is that neither individual choices nor public policy can make a substantial long-term difference to happiness.

In the other corner, economic theory:

Economists who, following the recent advice of the Commission on the Measurement of Economic Performance and Social Progress, now intend to use direct satisfaction-based measures of utility [happiness] must necessarily assume the opposite. There is no point in deploying such measures if individual preferences, behavioral choices, and public policy could not increase long-term satisfaction.

Research on happiness (relabeled as subjective utility) by economists developed rapidly in the 1990s, ironically just as setpoint theory became dominant… Economists have not developed a counter theory, but pursue a strategy of seeking to account for variance in life satisfaction due to individual utility maximizing behavior and policy interventions.

Economists have also developed explanations for why happiness may not appear to change over time that have nothing to do with happiness set points:

…Contrary to what a layperson might suppose, modern economists, starting with Richard Easterlin (the Easterlin paradox), have repeatedly claimed that money does not buy much happiness, especially in wealthy Western countries. The paradox
has been challenged…but critics have never been able to show that long-term income growth produces long-term gains in happiness. This nonoutcome arises mainly because rising incomes are subject to social comparisons with the neighboring Jones’s, whose incomes also keep going up. People adapt to their own and their neighbors’ new levels of income by raising their expectations, with the result that no lasting increase in happiness occurs.

How do you study these ideas?  By using an enormous data set:

…The German Socio-Economic Panel Survey (SOEP) provides by far the longest data series available worldwide. It reports interviews with a very large national representative sample aged 16 and over, who have answered questions about their life satisfaction every year from 1984 to 2008.

What did they find, and who cares?

During this quarter-century, large numbers of respondents recorded substantial and apparently permanent changes in satisfaction…[T]he scale of change indicates that set-point theory is seriously flawed. A key implication is that the economist’s goal of enhancing (subjective) utility via changes in individual behavior and public policy is not condemned to inevitable failure by human psychology. Nonfixed, nongenetic factors, including individual choices and public policy, may influence satisfaction levels, or utility so measured.

The authors go on to talk more about life factors that drive happiness, showing that things people can change about their lifestyle matter as much or more than personality traits or being married—things we might consider to be fixed in our lives.  Some we’ve heard before, but other insights are new and interesting (emphasis mine):

…[W]e have shown that life goals, religion, and personal choices matter for happiness. Key choices relate to one’s partner, the tradeoff between work and leisure, social participation, and healthy lifestyle. Life goals and choices have as much or more impact on life satisfaction than variables routinely described as important in previous research, including extroversion and being married or partnered. If we use these last two variables as benchmarks, it appears that partner’s level of  neuroticism, one’s own commitment to family and altruistic goals, church attendance, participation in social events, and regular exercise are all equally or more important than being extroverted.

…For both men and women, doing fewer paid hours of work than they want apparently has close to the same impact on life satisfaction as not being married/partnered. For women, being obese actually reduces life satisfaction more than not having a partner.

…people who find themselves working much more or less than they want are significantly less satisfied with life than those who come close to making their preferred tradeoff between work and leisure. For both men and women, being underworked is much worse than being overworked, presumably because lost consumption rankles worse than lost leisure.

…people who consistently prioritize non–zero-sum altruistic goals or family goals are more satisfied with life than people who prioritize goals relating to their own careers and material success. Giving priority to altruistic goals is strongly associated with higher life satisfaction, whereas family goals are also satisfaction enhancing. Corroborating some previous research, it appears that prioritizing success and material goals is actually harmful to life satisfaction.

Headey, B., R. Muffels, and G.G. Wagner (2010). Long-running German panel survey shows that personal and economic choices, not just genes, matter for happiness Proceedings of the National Academy of Sciences : 10.1073/pnas.1008612107

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Tags: happiness
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