Economics of Happiness

1. Justin Wolters and Robert Frank Economics of Happiness

2. Does Money Buy Happiness? – Justin Wolfers • Eastland Paradox – Raising levels of economic development does nothing for happiness challenged by Justin Wolters. • Richer people are happier than poorer people. • Richer societies are not happier than poorer societies. • Give up on economic growth. • No empirical data that a certain above a certain income does not increase happiness. • As income goes up, people become happier at all income levels. • Questions changed to indicate happiness did not increase in Japan. • Eight out of nine European countries became richer and happier. • Richer in the U.S. but not happier – Happiness rises with the log of income – economic growth has not gone equally to everyone – No surprise people are not getting happier.

3. Positional Goods – Justin Wolfers • Which world would you choose? • World A: You and your family live in a neighborhood with 4000-square foot houses, others in neighborhoods with 6000 square foot houses. • World B: You and your family live in a neighborhoods with 3000-square-foot houses, others in neighborhoods with 2000 square foot houses.

4. Positional goods – Justin Wolfers • Real life experiment on the Mexican/U.S. border.

5. Measures of Subjective Well-being – Justin Wolfers • Enjoyment – richer is better • Depression – richer countries have less • Stress – More stress in richer countries • Were you treated with respect – More respect in richer countries • Good tasting food – Better tasting food in richer countries • Smile or laugh allot – More laughter in richer countries • More days like yesterday – More wishes for days like yesterday in richer countries • Boredom – Wealth does not seem to banish boredom. • Sad – Wealth does not seem to banish sadness. • Well rested – Richer countries are better rested. • Physical pain – richer equal lower than pain. • Experience love – money cannot buy you love.

6. Nothing Radical about Happiness Economics – Justin Wolfers • Economists measure GDP. • Politicians are always focused on broader well-being agenda.

7. Money Does Buy Happiness but We Do Not Get as Much as We Could – Bob Frank • Self-interested individuals will be guided, as if by an invisible hand, to promote the common good. Adam Smith • Daniel Kahneman and Amos Tversky focus on human mistakes. Artificial Intelligence versus Natural Stupidity. • Traits that benefit individuals often works against group interests – Charles Darwin

8. Evolution and Economics – Bob Frank • Elks and antlers • Hockey players and helmets • People care about relative consumption more in some domains than in others. • Such concerns lead to expenditure arms races focused on positional goods – those goods for which relative position matters most. • Arms Races divert resources from nonpositional goods, causing large welfare loss.

9. Expenditure Cascades – Bob Frank • Top earners spend more money because they have more money. • Shifts frame of reference for people just below. • And so on all the way down the line. • Growth rates correlate with commute time, divorces, and bankruptcy.

10. Steer resources away from arms races – Bob Frank • Tax consumption not incomes creates disincentives against arms races. • Relative position is everything – Out do everybody in that niche

11. Justin Wolfers and Robert Frank • Private Schools • McMansions • Intuitive argument is hard to reject, but empirical evidence is not available for this argument at this point in time. • Logs compare percentage changes with relations to self – relative comparisons may justify progressive policies.

12. Research on Happiness • https://www.youtube.com/watch?v=YCV8IPlP-GE • http://www.gallup.com/strategicconsulting/en-us/worldpoll.aspx • http://www.theeconomicsofhappiness.org