Happiness: Lessons for Economists from Psychologists

1. Happiness:What Can Economists Learn from Psychologists? Tanapong Potipiti Chulalongkorn University

2. Introduction (1) • Recently (within the last 10 years), it becomes fashionable and trendy for economists and policy makers to talk about happiness. • Multi-disciplinary (mainly psychology and economics) research on happiness is the study on happiness and well-being of people by combining statistical and empirical techniques. • The only prime purpose of this research program is • To make people happier.

3. An interesting question is that why there were no such research program on happiness before? Believe it or not? • In the past people didn’t value happiness. • Instead, they valued virtue and greatness, which may result in suffering. • Happiness is considered unworthy pursuit.

4. How Economists Thought and Still Think about Happiness (1) • Economists believe that happiness is private experience and cannot be either measurableorcomparable across persons. • In late 19th century, Vilfredo Pareto define d concept of efficiency as the point where we cannot make someone happier without hurting another one. • Under this definition, the economy in which a person consumes everything and the others are dying is efficient!!!

5. How Economists Thought and Still Think about Happiness (2) • As a prime assumptionin economics, economic agents are rational and choose their best choices to maximize their utility and happiness. • Under such assumption, people becomes a drug addict or commit suicide for the sake of his or her happiness. • Consequently, economists believe that the reason people are not happy because they don’t have enough resource to choose.

6. The psychologist who won a Noble Prize in Economics in 2002 Prof. Daniel Kahneman • He never took a formal course in Economics.

7. How Psychologists Thinks about Happiness • Psychology is much more practical discipline than economics. In the past goal of psychology is to heal people from mental illness. • Psychologists believe that people are not rational and many times are stupid. They don’t know what make them happy and can many times hurt themselves. • They believe that happiness and unhappiness can be comparable and measurable across people.

8. How Psychologists Measure Happiness 1. In general, I consider myself (not very happy) 1 7 (very happy) 2. Compare to most of my friends, I consider myself (less happy) 1 7 (more happy) 3. Some people are always happy no matter what. To what extent does this characterization describe you. (not at all) 1 7 (very much) 4. Some people are always unhappy no matter what. To what extent does this characterization describe you. (very much)1 7 (not at all) What is your Total Score?

9. Result • Average score (done in the U.S.) • College students 4.8 • Working adult 5.6

10. Geography of Happiness Green = Happiest > Blue > Purple > Orange > Red = Least Happy; Grey = Data not available

11. Determinants of Happiness: Methodology 1. Regression Method Happinessi = a + b1.X1i + b2.X2i + .... +. Happinessi = Happiness level of person or country i Xs = potential determinant of happiness 2. Experiment measure subjects’ happiness level before and after an experiment

12. The Determinants of Happiness

13. Determinants of Happiness: Results • Religion • Good relationship • Thinking style • Exercise

14. Economic Determinants of Happiness: Money and Happiness • Above the poverty level, the marginal utility to happiness is about zero. Happiness Money PovertyLevel

15. Money and Happiness (2) • A study survey happiness levels of 21 lottery winners in the US. The survey shows that the happiness levels of all winners return to its natural level within 1 years. • Although the average income of Americans has grown a lot during the last 50 years, its average level of happiness has been dropped. Moreover, the American population ratio who gets clinically depressed also double.

16. Other Economic Determinants of Happiness • Inequality and Happiness: • Countries with less inequalities are more happy. • Consumption and Happiness: • Conspicuous consumption (for example, fashionable clothes) does not increase happiness level. • Inconspicuous consumption (for example, buying a good book) increases happiness level.

17. Criticism on Happiness Research (1) • Happiness cannot be measurable and comparable. • Causality problem • People themselves do not know whether they are happy. • People’s memory are bias. • How to measure happiness levels across time? • Money may not bring happiness but it does during crisis time.

18. Criticism on Happiness Research (2) • Questionnaire is unreliable. • Which countries are most similar: East Germany, West Germany, Austria, Poland ? • Which countries are most different: East Germany, West Germany, Austria, Poland ? • These research programs simply give trivial results. • But common sense is not common practices and common sense is inconsistent with what happen.

19. Conclusions on Happiness Determinants • Unclear about policy implication. • Do not promote growth, but income equality? • Other research on happiness • Why do people choose choices that bring them unhappiness systematically?

20. Related Research: How do We Make Irrational Choices? • We are systematically irrational and cannot be corrected. Believe it or not square A and B have the same color.!! A B

22. Lesson from Optical Illusion • Optical Illusion is hardwired in our brain and we cannot learn to correct it. • The same applies to our emotional illusion.

23. Related Research: How do We Make Irrational Choices? (2) • People make decisions based on their current situation. • People tend to adapt to things around them eventually. • People tend to remember feelings that they expect to remember, not actual feelings that they experience.

24. Depression: What is it? (1) • Have you been feeling sad or down in the dumps? • Does the future look hopeless? • Do you feel worthless or think of yourself as a failure? • Do you feel inadequate or inferior to others? • Do you get self-critical and blame yourself for everything? • Do you have trouble making up your mind about things? • Have you been feeling resentful and angry a good deal of the time? • Have you lost interest in your career, your hobbies, your family, or your friends? • Do you feel overwhelmed and have to push yourself hard to do things? • Do you think you’re looking old or unattractive? 0-Not at all, 1-Somewhat, 2-Moderately, 3-A lot

25. Depression: What is it? (2) What is your total score? • 0-3 Minimal or no depression • 4-7 Borderline depression • 8-13 Mild depression • 14-20 Moderate depression • 21-30 Severe depression If your total score >10 for more than 2 weeks continuously, you are considered clinically depressed.

26. The Cause of Depression • No policy implication • Depression is not opposite to happiness. • In the past, depression is considered fault of ethics or characters. • To cure depression, education and moral lesson are necessarily. • Now it is accepted that depression is a physical disease resulting from chemical imbalance.

27. Trend of Depression • More people get depressed. • 1 of every 10 people is clinically depressed. • 1 of every 4 people get clinically depressed in their lifetime. • WHO predicts that in 2020 depression will be the second leading cause of mortality affecting 30% of adults.

28. Cost of Depression • Annual cost of depression in the U.S. is about 48 billion US dollars. • There are strongly correlation between poverty and depression. • One explanation is that when you’re poor, you get depressed. When you get depressed, you are helpless and consequently become poorer. => vicious cycle

29. Depression, Drug, Happiness and economic Other Economics Problems • Medical research: One should cure depression first and the poverty will cure itself automatically. • Cure • Change thinking style (Talk Therapy) • Antidepressant (More Cost Effective) • Anti-depressant can not only cure depression, but also make people more happier, productive and even change their lives with almost no side effects. • It is controversial but in the future all problems including economic problems may be solved by feeding happiness directly into the brain.