Tuesday, June 26, 2012

If money can't buy happiness, what can?

In an earlier post about economics and ministerial salaries, I said that at the end of the day economics is about happiness. In fact, thousands of academic papers have been published on the subject. Furthermore, this isn't something just for the academics - the Bhutan government has a Gross National Happiness index which is also being replicated by some groups in the US.

Happiness is important stuff, then, and everyone should have some inkling of the subject, if only for water cooler ammoA good place to start is "Happiness, Economics, and Public Policy": it gives a concise summary of findings, balanced with problems like "why measuring happiness is tricky". If you have the time, read the file in it's entirety, but I suspect most would just be interested what affect happiness (chapter 3). Here's a summary.

Happiness and GDP
GDP growth often takes center stage amongst the universe of economic indicators. Singapore politicians have also been accused of being too obsessed with GDP growth. It comes to no surprise then, that chapter 3 of "Happiness, Economics and Public Policy" dives straight into this subject. In a nutshell, it does appear that money can buy happiness - richer people are happier than poorer people, but as income goes higher and higher the increase in happiness gets smaller and smaller.

Nevertheless, this finding is just for a cross-section in time. We are also interested in how happiness varies over time - are people happier last month, year, or decade, than they are today? Looking at this, most researchers find that income levels barely affect happiness levels. The graph below for the UK, taken from the paper, is quite telling, and needs no elaboration - it does seem that money can't buy happiness.

In summary, at any point in time, richer people are happier than poorer people. However, over a period of time, average happiness seems to stay constant. Why might this be the case? Three theories have been put forward and are listed below for you to ponder about:
  • Adaptation theory: more income makes you happier, but only temporarily. Over time, your happiness reverts back towards its original level.
  • Social comparison: people compare their income with their peers, and it is relative income that matters. If over time, incomes increase more or less proportionately, your happiness will stay the same.
  • Aspiration theory: it is the gap between aspirations and achievements that matter, not achievements per se. When your income increases, your aspirations also rise to the extent that your happiness is constant. 

Other things that make people happy
If money doesn't make one happier over time, what does? Studies have examined a host of factors such as leisure time, crime, infant mortality, longevity, unemployment, gender inequality, and public spending - things that, as the paper puts it, "would be expected by any reasonable person to affect happiness". Surely having less crime and more leisure time would make someone happier? 

Not really. Despite huge changes and improvements in these indicators over the years, happiness levels have not budged. For example, the graph below, again from the paper, shows how happiness levels have varied, or rather, not varied, with crime rates.

People might adapt, compare, and aspire not only with regards income, but all sorts of things from infant mortality and gender equality. Are life satisfaction levels doomed to stagnate? 

Happily married
No. It appears that there is, as the paper puts it, "impressive" evidence that marriage leads to a permanent increase in happiness. One might argue that happier people tend to marry, and the causality is running the wrong way. Nevertheless, statistical methods and good data have been used to remove this problem. In all, 95 studies have shown that marriage makes people healthier, happier, and live longer. These benefits are not only there, they are large - for example marriage can even offset the negative health consequences of smoking. They also don't apply to those cohabiting, and somehow are exclusive to married couples. 

Hence, happiness is invariant to a whole host of things like income, leisure time, crime, infant mortality, longevity, unemployment, gender inequality, etc. Not all is lost, though, as marriage does give happiness a big boost. If you aren't married, you might want to start looking for the boy/girl of your dreams, and work to becoming the girl/boy of someone else's dreams! 

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