Two Thought Experiments

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Two Thought Experiments

• With everything that you know about what it was
  like 50 years ago,
• A. Would you rather have been born 50 years
  earlier than you were actually born?
• B. If you had to give up a child for adoption,
  would you rather give it up for adoption to a
  random family in the U.S. of today, or in a
  random family in the U.S. of 50 years ago?

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The Economics of Happiness

• 2009 H. Chase Stone Lecture
• at Colorado College
• Miles Kimball

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Outline

• Theory
• New Empirical Investigations

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Partial List of Coauthors on Related Papers

• Utility and Happiness,
• by Kimball and Robert Willis
• Unhappiness After Hurricane Katrina
• by Kimball, Helen Levy, Fumio Ohtake and
  Yoshiro Tsutsui
• The Dynamics of Happiness After Major Life
  Events by Kimball, Ryan Nunn and Dan Silverman
• Happiness and the U.S. Elections of 2006 and
  2008 by Kimball, Ohtake, Rocio Titiunik and
  Tsutsui
• The Dynamics of Daily Happiness After Personal
  and National News by Kimball, Ohtake and Tsutsui
• Happiness Literacy and Happiness Motivation by
  Dan Benjamin and Kimball

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Why Happiness Matters for Economics

• 1. Preference for Happiness Many people value
  happiness, as evidenced by the fact that they
  will sacrifice other things for the sake of
  happiness.
• 2. News and Happiness Short-run spikes and
  dips in happiness
• signal what people consider good and bad news,
• which in turn signals what they care about.

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Two Definitions of Happiness

• The Greatest Good for an Individual
• Feeling Happy

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Who Judges the Greatest Good for an Individual?

• An Authority Figure or the Speaker
• True Happiness used as a cudgel
• Economics Defers to the Individual
• Utility

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Utilitarianism (Jeremy Bentham, John Stuart Mill)

• The greatest good of the greatest number
• ?Solving social problems is important because it
  is a miserable experience to be poor, sick or
  downtrodden.
• ?It is also important to make things better,
  wherever we can, even if they are already good.
• Utilitarianism is part of the philosophical
  foundation of economics.

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Measuring Utility The Modern Tradition of
Economics

• Look at an individuals choices (preferences).
• What an individual chooses indicates what she
  wants, cares about and values.
• This works well when the individual is
• Well informed
• Thoughtful
• Not at war with self

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Measuring Happiness, in the Narrow Sense of
Feeling Happy

• On a scale from one to seven, where one is
  extremely unhappy and seven is extremely
  happy, how do you feel right now?

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Greater Happiness in the Narrow Sense is Not
Always a Good Thing

• Mania too much happiness
• Too much sacrificed for the sake of feeling
  happier
• Example changing ones political beliefs in
  order to be happier.
• Charles Schultz, author of Peanuts

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Distinguishing utility and happiness as a matter
of logic.

• Utility The extent to which people get what
  they want, where what they want is indicated by
  their choices.
• Happiness How positive peoples feelings are at
  a given time.

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Evidence that Utility?Happiness

• People who knowingly, thoughtfully and without
  regret choose not to maximize long-run happiness
  indicate that utility?happiness for them.
• People make choices eagerly that they never
  regret, but which have no long-run effect on how
  happy they feel.
• Moving to a new city
• Buying a nice car
• 3. People thoughtfully make choices that they
  never regret, which lower their long-run felt
  happiness.
• Commuting further to a higher-paying job.
• Longer working hours to put ones child through
  college.
• Having a baby?
• Doing ones duty.

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The Nature of Happiness

• (What Makes Us Feel Happy)

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Key Facts about What Makes Us Feel Happy

• 1 Easterlin Paradox
• 2 Hedonic Adaptation

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The Easterlin Paradox
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The Evidence of Choices Migration Flows
Indicate that Income is Valuable to People

• Per capita GDP in Mexico is not far from what it
  was in the U.S. in the 1950s.
• Large numbers of Mexicans choose to migrate to
  the U.S.
• Among the many costs of migration, their social
  rank often drops drastically when they migrate to
  the U.S. Despite this, they come.

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Two Thought Experiments

• With everything that you know about what it was
  like 50 years ago,
• A. Would you rather have been born 50 years
  earlier than you were actually born?
• B. If you had to give up a child for adoption,
  would you rather give it up for adoption to a
  random family in the U.S. of today, or in a
  random family in the U.S. of 50 years ago?

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Fact 1

• In the long run, people can become better off
  without feeling happier.

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Recent Challenges to the Easterlin Paradox
Money Does Buy Happiness.Consistently.

• Betsey Stevenson and Justin Wolfers present
  evidence that average happiness tracks per capita
  income in most countries. The U.S. is an outlier.
• Jean-Benoit Rousseau gives evidence that
• The rich (who have been getting richer in the
  U.S.) have been getting happier.
• It is the poor, whose income has been stagnant,
  who are getting less happy.

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Happiness by Income Quintile
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The Paradox of Declining Female
HappinessBetsey Stevenson and Justin Wolfers

• Abstract By most objective measures the lives
  of women in the United States have improved over
  the past 35 years, yet we show that measures of
  subjective well-being indicate that womens
  happiness has declined both absolutely and
  relative to male happiness. The paradox of
  womens declining relative well-being is found
  examining multiple countries, datasets, and
  measures of subjective well-being, and is
  pervasive across demographic groups.

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• Relative declines in female happiness have eroded
  a gender gap in happiness in which women in the
  1970s typically reported higher subjective
  well-being than did men. These declines have
  continued and a new gender gap is emergingone
  with higher subjective well-being for men. Our
  findings raise provocative questions about the
  contribution of the womens movement to womens
  welfare and about the legitimacy of using
  subjective well-being to assess broad social
  changes.

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Fact 1

• In the long run, people can become better off
  without feeling happier.

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Hedonic Adaptation This, too, shall pass.

• 1. After time has passed, things that surely had
  a big effect on happiness right after the event
  have surprisingly little effect on happiness.
  (Not just money.)
• incarceration
• loss of the use of limbs
• serious burns
• death of a spouse
• winning the lottery
• 2. The dynamics of national happiness after news

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Fact 2 about Happiness

• Happiness depends more on changes than on the
  absolute level of ones circumstances.
• Analogy We have no altimeter in our brains, but
  we can tell whether we are going up or down.

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The Elation Theory of Happiness

• Experienced happiness is the sum of two
  components
• elation short-run happiness that depends on
  recent news about lifetime utility
• baseline mood long-run happiness that depends on
  ones daily actions

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Elation and Hedonic Adaptation

• Because it is based on recent news, elation
  fades,
• News doesnt stay news for very long.
• The initial burst of elation dissipates once the
  full import of news is emotionally and
  cognitively processed.
• This can help explain why, in the long run,
  becoming better off may not lead to greater
  happiness.

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The Evolutionary Psychology of Elation and Dismay

• Functionally, elation and dismay may motivate
  cognitive processingmuch like curiosity.
• Elation after good news, it pays to
• think what you did right, so you can do it again
• think how to take advantage of the new
  opportunities
• Dismay after bad news, it pays to
• think what you did wrong, so you can avoid doing
  it again
• think how to mitigate the harm of the bad news
• Curiosity after news that is neither clearly
  good nor bad, it pays to learn more for the sake
  of option value

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The Evolutionary Psychology of Hedonic Adaptation

• Analogy Adjustments in the pupil of the eye
  protect the eye and enhance sensitivity.
• Protect Being too happy or too sad has physical
  costs. Hedonic adaptation protects from these
  costs.
• Enhance Sensitivity Hedonic adaptation may
  also increase our sensitivity to, and motivation
  to make, local changes in our objective
  circumstances. (Frederick and Loewenstein)

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Speculations on The Evolutionary Psychology of
Baseline Mood

• High social rank makes it safe to look more for
  opportunities than for dangers.
• Thus, it makes sense to stimulate the same
  machinery turned on by the receipt of good news.
• Optimists and pessimists need each other.
• Quirks in the system?
• Pinkers cheesecake

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Raising Baseline Mood How to Raise Happiness in
the Long Run

• Prozac and Talk Therapy
• Taking Care of Oneself
• Sleep
• Exercise
• Eating well
• Enjoyable Activities
• Spending time with friends
• An engrossing hobby

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How to Raise Happiness in the Long Run (cont.)

• 4. Positive attitudes
• Gratitude
• Forgiveness
• Acceptance of ones situation
• Raising ones income without sacrificing sleep,
  exercise, time with friends,
• Raising ones social rank

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The Problem with Happiness from Social Rank

• The usual strategies for raising social rank are
  a zero sum gameanything that works for one
  person makes everyone else worse off by lowering
  their social rank
• However, we can
• Choose the right pond
• Help the unfortunate
• Treat one another with dignity

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Why are Utility and Happiness Confused?

• Because they are dramatic, elation and dismay may
  dominate peoples perception of happiness.
• Everyone wants good news. That is, everyone
  wants what spikes in happiness signal.
• Not everyone values the emotional spikes per se,
  as distinct from what they signal.
• Not everyone will sacrifice other goods for the
  long-run happiness that remains even when there
  is no good or bad news.

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A Non-Judgmental View of the Effect of
Materialism on Happiness

• Materialism lowers happiness (weak, but
  interesting evidence).
• Tradeoff between happiness and other goods.
• Materialism means higher preferences for other
  goods compared to happiness.

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Why Doesnt Rising Income for the Lower Income
Quintiles Lead to Greater Happiness?

• 1. Lack of Understanding of Happiness?
• 2. More internal conflicts from greater income?
• obesity
• drug use
• 3. Negative externalities from others freedom?
• breakdown of community
• divorce
• 4. Resources spent on increased lifespan?
• 5. Raising ones happiness takes time.

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Relationship to the Orthodoxy of Other Happiness
Researchers

• People value happiness
• (and will sacrifice other goods for it)
• versus
• People should be maximizing happiness
• (economists often interpret this as saying
  that happiness is the true utility function).

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Implications for Policy

• Happiness is valuable should be fostered.
• Happiness data are a reminder of tangible and
  intangible externalities in the utility
  functionespecially social rank externalities.
• Economic growth is of enormous value, despite the
  Easterlin Paradox.
• Happiness data is not enough to diagnose
  optimization mistakes.

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Conclusion Integrating Happiness into Mainstream
Economics

• Happiness needs to be integrated in a way that
  respects the canons of Economics.
• Two key dimensions for integrating happiness into
  economics
• First, the short-run responses of happiness to
  news provide important information about
  preferences.
• Second, long-run happiness is important in its
  own right.

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Empirical Projects

• Tradeoffs between happiness and other goods
• Happiness Literacy and Happiness Motivation
• High frequency movements in happiness
• The Dynamics of Happiness After Marjor Life
  Events
• Unhappiness After Hurricane Katrina
• The U.S. Elections of 2006 and 2008 and
  Happiness
• Daily Happiness Dynamics in Response to Personal
  and National News

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Happiness Literacy and Happiness Dynamics

• If happiness is a good that people trade off with
  other goods, valuing it highly should be
  associated with higher levels of happiness as
  people make more efforts and sacrifices to be
  happy.
• Knowing the facts about happiness should also
  help people be happy.

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The Dynamics of Happiness After Major Life Events

• June 5, 2007
• Miles Kimball, Ryan Nunn and Daniel Silverman
• Using HRS data to observe the relationships
  between economically quantifiable life-events,
  such as the death of a spouse, and a quantifiable
  measure of happiness.

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The Happiness Measure on the HRS and the
Reuters/University of Michigan Surveys of
Consumers

• Now think about the past week and the feelings
  you have experienced. Please tell me if each of
  the following was true for you much of the time
  this past week
• Much of the time during the past week, you felt
  you were happy. (Would you say yes or no)?
• (Much of the time during the past week,) you felt
  sad. (Would you say yes or no?)
• (Much of the time during the past week,) you
  enjoyed life. (Would you say yes or no?)
• (Much of the time during the past week,) you felt
  depressed. (Would you say yes or no?)

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Non-parametric estimates, w/controls
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Parametric estimates, no fixed effects MEN
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Parametric estimates, no fixed effects WOMEN
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Parametric estimates, no fixed effects w/ LIFE
INSURANCE
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Parametric estimates, no fixed effects NO LIFE
INSURANCE
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Findings

• Quick Hedonic Adaptation (Mean Reversion of
  Happiness)
• Men react more than women
• Those without life insurance react more than
  those who do have life insurance.

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Two Strategies for Using Happiness Data to Value
Non-Marketed Goods

• Divide the effect of the non-marketed good on the
  long-run level of happiness by the effect of
  money on the long-run level of happiness.
• Divide the effect of news about the non-marketed
  good on the dynamics of happiness (lost area
  under the curve) by the effect of news about
  money on the dynamics of happiness.

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Unhappiness After Hurricane KatrinaKimball,
Levy, Ohtake, Tsutsui

1. Important national news events can have a
   significant effect on average happiness in the
   U.S.
2. Even for Hurricane Katrinaa quite big eventthis
   effect was short-lived, lasting only a few weeks.
3. The dip in the average happiness in the U.S.
   after Katrina may provide non-market evidence of
   altruism.

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The U.S. Elections of 2006 and 2008 and
HappinessKimball, Ohtake, Titiunik Tsutsui

1. Partisan movements in happiness near elections
   reflect heterogeneity in preferences over
   non-market goods.
2. Happiness reaction depends on both intensity of
   political preferences and expectations. (2006
   elections)
3. Potential for validation of happiness movements
   as a measure of the strength of preferences.
   (2008 elections)

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Mainline ?Happiness RegressionsPre- and
post-election waves
Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election Pre-election intensity of preferences and change in happiness, pre-to-post-election

Dependent variable is ?Happiness Index (-100 to 100) Dependent variable is ?Happiness Index (-100 to 100) Dependent variable is ?Happiness Index (-100 to 100)          
  (1) (2) (3) (4) (5) (6) (7) (8) (9)
Surprise measure (studentized) 1.91 3.17 1.85 1.94 3.10 3.19 1.84 3.09 3.08
(0.98) (1.05) (0.95) (0.98) (1.05) (1.05) (0.96) (1.05) (1.06)
Obamamania (studentized) 2.90 3.64 2.88 2.92 3.62 3.67 2.91 3.65 3.64
(0.98) (1.05) (1.00) (1.00) (1.05) (1.06) (1.00) (1.06) (1.07)
Emote Sensitivity (studentized) -1.49 -1.47 -1.49 -1.50 -1.48 -1.49 -1.54 -1.52 -1.43
(0.83) (0.83) (0.83) (0.84) (0.82) (0.83) (0.82) (0.82) (1.01)
SurpriseObamamania 2.26 2.26 2.26 2.25 2.24
(0.92) (0.93) (0.92) (0.93) (0.92)
SurpriseSensitivity 0.55 0.55 1.08 1.08 1.15
(1.05) (1.03) (1.26) (1.24) (1.27)
ObamamaniaSensitivity 0.45 0.45 1.00 0.99 1.02
(0.91) (0.90) (1.10) (1.08) (1.14)
SurpriseObamaSensitivity 0.19
(1.21)

N 1314 1314 1314 1314 1314 1314 1314 1314 1314
R-squared 0.011 0.016 0.011 0.011 0.017 0.016 0.012 0.018 0.018
All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term. All results are from OLS regressions. Standard errors robust to heteroskedasticity are in parentheses. All regressions also include a constant term.
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Daily Happiness Dynamics in Response to
NewsKimball, Ohtake, Tsutsui

1. Subjective ratings of both personal and national
   news (-5 to 5 scale of bad news to good news)
   are tightly related to subsequent happiness
   dynamics.
2. News on a given day affects happiness for about
   two weeks.
3. Personal news has a bigger effect on happiness
   than national news.
4. Proportional duration is indep. of size

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Unhappiness After Hurricane Katrina

• Miles Kimball
• Helen Levy
• Fumio Ohtake
• Yoshiro Tsutsui

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The Happiness Measure on the Michigan Surveys of
Consumers

• Now think about the past week and the feelings
  you have experienced. Please tell me if each of
  the following was true for you much of the time
  this past week
• Much of the time during the past week, you felt
  you were happy. (Would you say yes or no)?
• (Much of the time during the past week,) you felt
  sad. (Would you say yes or no?)
• (Much of the time during the past week,) you
  enjoyed life. (Would you say yes or no?)
• (Much of the time during the past week,) you felt
  depressed. (Would you say yes or no?)

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Implications of the October Dip in Happiness

• It is difficult to explain this dip in happiness
  on the grounds that lifetime utility is seriously
  effected in terms of self-interest.
• If this dip in happiness is due to altruism, the
  happiness data told us something we might not
  otherwise have known Americans cared quite a bit
  about those hurt by the earthquake in
  Pakistanmore than one would suspect from the
  donation data.
• Katrina and Rita gt2.65 Billion
• South Asian Tsunami gt1.55 Billion

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Possible Explanations

• Response of Happiness to News about Lifetime
  Utility
• Altruism
• Self-Interest
• Direct Effect of Graphic Images of Suffering
• Definition Even if an individual watched video
  clips of a long-ago disaster, their happiness
  would still go down.

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What does it mean to say that lifetime utility
has fallen permanently?

• Revealed Preference is the measure of lifetime
  utility.
• If there were a lever to magically undo the
  damage of Katrina, we would pull it.
• True for the harm to others.
• True for the harm to self, narrowly construed.
• True even if the past cannot be changed but only
  the harm from now on reversed.

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Serious Harm to Self-Interest? The Index of
Consumer Sentiment
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Arguments Against the Graphic Images Explanation

• Heavy news coverage of Katrina continued for 4
  weeks, but happiness returned to normal after two
  weeks.
• This cant reflect simple desensitization to
  graphic images, since heavy coverage of the
  suffering associated with the Iraq War had been
  going on for years, yet happiness fell after
  Katrina.
• Thus, the meaningor at least the detailsof the
  images seems to matter.

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Implications of the Greater Dip in Happiness in
the Katrina Region

• The greater effect on the South Central region
  helps demonstrate that the dip in happiness is
  due to Katrina rather than to an extraneous
  circumstance.
• To the extent there was saturation coverage
  throughout the U.S., the graphic images
  explanation cannot explain the stronger negative
  effect on happiness in the South Central region.
  

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