New Economist

Born to be mild?

A new IZA discussion paper by Andrew Clark, Born To Be Mild? Cohort Effects Don’t (Fully) Explain Why Well-Being Is U-Shaped in Age, advances the long-running debate on the relationship between age and happiness. Chris Dillow at Stumbling and Mumbling explains it well:

For some time, those of us in our early 40s have been able to find comfort in economic research, as this has shown that happiness is U-shaped in age; people become unhappier until their early 40s, but then cheer up.

But why? Early research was unable to distinguish between two possibilities - that there's something abut the average life which causes this U-shape, or that it's a cohort effect; people born 40-odd years ago are unhappier than those born earlier or later.

This new paper by Andrew Clark finds that it's the former. His evidence is fairly straightforward. Let's say we found in 1995 that 41-year-olds were the most unhappy people, controlling for other things. If this were a cohort effect, you'd expect the unhappiest people in 1996 to be 42-year-olds, the unhappiest in 1997 to be 43-year-olds, and so on.

But this isn't so, he finds. Which implies that the U-shape is due to life events, not the fact that people born the in the mid-50s are naturally misery-guts.

The U-shape, he finds, is more pronounced for men than women, and for the higher-educated than less educated. Well-being troughs, on average, just after our 41st birthday.

But why? One possibility is that men in their late 30s become increasingly stressed out by work or their kids, and realize the missus is losing her looks. But they begin to sort these problems out, or get used to them, by their mid-40s.

I'm suprised by this. Intuitively, one could equally well argue that one's early 40s are the best times. You're old enough not to worry about money, but young enough not to worry about health. And you're old enough to have some happy memories, but not so old as to have lost hope of turning things around. So why are these considerations - on average -  offset by others?

The economics of happiness: a progress report

Little by little, psychology's insights into happiness and well-being are being integrated into economic theory and debate. Happiness has become one of the hot topics in economics over the last decade, with both the size and depth of the literature increasing at a rapid rate.

Though US-based psychologists Daniel Kahneman and Ed Diener and economists Richard Easterlin and Alan Krueger can take much credit, so too can the British 'brat pack' consisting of Warwick's Andrew Oswald, Paris-based Andrew Clark, Dartmouth's Danny Blanchflower and (as an honourary elder statesman), the LSE's Richard Layard. The two Andrews were writing about this stuff years ago, when 'respectable' academic economists thought the topic barking.

What is particularly encouraging is that economists are starting seriously to tackle the major empirical and the theoretical challenges that this literature has uncovered. A new paper by Andrew Clark, Paul Fritjers and Michael A Shields, prepared for the Journal of Economic Literature, ups the ante. Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles (PDF) takes as its starting point Easterlin's seminal 1974 paper which posed a paradox - that happiness does not appear to increase with income, once basic needs are fulfilled. The paper covers a lot of ground, including adaptation, social comparisons, relative income, utility and much more besides. There is a short but insightful description of the key challenges for empirical work. And to wrap it up, the authors explore some implications for economic theory and policy design. As a sampler, here are the authors concluding remarks:

The interaction between economic theory and happiness is therefore the next milestone for the developing economics of happiness literature. However, it is clear that the empirical literature on happiness still faces several challenges, many of which are shared with other empirical literatures. Two of the key challenges are to deal with a general inability of survey data to precisely time changes in income with changes in happiness over long time periods, and the difficulty in mapping incomes into current and expected consumption. It is also the case that most datasets do not contain reliable (if any) ex ante information regarding the group (the reference point) to which individuals compare themselves. Similarly, no dataset can contain all the variables of importance, so that researchers will continue to face the issue of endogeneity with respect to income and other variables such as marriage, education, and the reference group. Finally, natural experiments producing exogenous variation in income are only rarely observed, making the issue of establishing the causal effect of income on happiness a major challenge.

Our final conclusion is that taking relative income seriously is an important step towards greater behavioural realism in Economics, such that our models and empirical analysis move closer to how real people feel and behave. Some may not like the insertion of additional arguments into individual utility, and remark that any behaviour can be rationalised by an appropriate manipulation of the utility function. While this is formally true, it does not apply wholesale to the issue of relative income. As we have tried to demonstrate, utility functions including relative income terms produce a wide variety of testable predictions regarding both well-being (measured by survey or neurologically) and observable behaviours: it is not true that “anything goes”. To our mind, this is precisely why we need to appeal to both direct measures of utility and observed behaviour in order to obtain a better idea of what the utility function looks like, and make policy recommendations in the best interest of society. Testing these predictions not only allies theory and empirical analysis in economics, it also spills across many disciplines in the social and natural sciences; it is arguably the most important and the most promising of the research avenues open to this thriving literature.

This is no light summer reading, but for those seeking to advance the debate, it's a big step forward.

New book: 'Economics and Psychology'

A belated post to acknowledge a welcome new volume, Economics and Psychology: Developments and Issues, published in July by MIT Press. Edited by the University of Zurich's Bruno S. Frey and University of Basel's Alois Stutzer, it appears to have a first rate selection of contributions. You can read the table of contents and download chapter one here.

The editors acknowledge in their introductory chapter the debt that economcs owes to psychology:

...together economics and psychology is a vibrant and fruitful field. We have argued that psychology has had a strong impact on economics: it has helped to substitute the assumption of complete rationality by isolating anomalies in individual behavior; it has made experiments a valid and widely accepted method of research; it has broadened the view of human nature by showing pro-social, intrinsic, and procedural aspects in people’s preferences; and by showing that utility can be measured it has produced important knowledge about what people care for.

The danger that economics and psychology becomes an additional playground for exhibiting one’s mathematical prowess is perhaps smaller than in other areas because psychologists’ influence has from the very beginning introduced a strong empirical (experimental) orientation. We have argued that remarkable insights have already been reached but at the same time we are fully aware that in so many respects we still know so little. The field is wide open for future research.

As my copy is in the post, I provide excerpts from a review of the book by the University of Massachusetts's Herb Gintis, which he posted on Amazon.com:

...the book under review is only in passing about the Kahneman-Tversky influence on decision theory. Rather, it focuses on a second wave of behavioral experiments involving strategic interaction (game theory) rather than single-agent choice (decision theory). Economists have been at the center of this new "behavioral game theory," which began with the famous ultimatum game experiment of Werner Gueth in 1982 (Guth, 1982). Indeed, except for Ralph Herwig, almost every contributor to this volume is trained in economics or business rather than psychology.

...Behavioral game theory has produced some quite notable results. Most important, researchers are corroborating what sociologists and social psychologists have known for a long time: human beings are not the self-regarding, asocial, materialistic creatures assumed in traditional economic theory under the rubric of homo economicus. Rather most laboratory and field subjects care about fairness and justice, and are willing to sacrifice material gain in the pursuit of normative goals. Moreover, most individuals have a more or less firm commitment to such character virtues as honesty, dependability, and trustworthiness, and are willing to forego some level of personal material reward in order to conform to the principles of virtuous conduct. More generally, people care about process as well as outcome in their interactions, so are more likely to contribute to a project that was democratically chosen rather than autocratically imposed, and their notions of fairness include such other-regarding elements as returning good for good and evil for evil.

The various contributors to this volume are almost all highly visible and creative leaders in their fields. The chapters are uniformly informative and well written. Several are illuminating in both reviewing the literature and providing an analysis of a single issue in journal article depth. Topics covered include prosocial behavior and trust in general, conditional cooperation and punishment, gender differences in trusting behavior, the neuroeconomics of decision-making, measuring subjective satisfaction and finding its causes, problems of self-control and time inconsistency, procedural utility, and recommendations for closer collaboration of psychologists and economists.

Women: more equal, less happy

I had been meaning to post about the fascinating new paper by Betsey Stevenson and Justin Wolfers from the Wharton School: The Paradox of Declining Female Happiness (PDF). American men are now more satisfied with their lives than women - a reversal of the situation in the mid-1970s. There is a similar, though less sizeable, pattern in Europe.

Alex Tabarrok at Marginal Revolution blog also noticed the paper. His explanation?

My wife, a PhD microbiologist, told me once that when she was at work she felt guilty about not being at home with the kids and when she was at home with the kids she felt guilty about not being at work.

...Opportunity brings opportunity cost.

...As I wrote this post, I asked my wife about her feeling guilty at home and at work but she told me she no longer feels this way. "Really?" I asked,  "Why not?"

"I decided to act more like a man and get over it," she responded.

Tabarrok also cites a recent New York Times article by David Leonhardt, He’s Happier, She’s Less So. Leonhardt's explanation is not dissimilar:

What has changed — and what seems to be the most likely explanation for the happiness trends — is that women now have a much longer to-do list than they once did (including helping their aging parents). They can’t possibly get it all done, and many end up feeling as if they are somehow falling short.

'Happiness' (life satisfaction) is dynamic not static, and expectations can matter greatly.

UPDATE:
Mark Liberman at Language Log makes an important point about the Stevenson and Wolfers paper. To the naked eye, Figure 1 in the paper (the US happiness time series from 1972-2006) shows very little difference by gender. As Liberman points out, it is only after responses have been adjusted via an ordered probit that a statistically significant difference (though not a huge one) is detected. In a follow-up post, Gender-role resentment and Rorschach-blot news reports, he goes further:

OK, everybody, take a deep breath and listen: THERE IS NO HAPPINESS GAP!

Every year since 1972, the General Social Survey has been asking a big demographically-balanced sample of American men and women "Taken all together, how would you say things are these days? Are you a) very happy, b) pretty happy, c) not too happy."

Neither in 1972 nor in 2006 was there any statistically significant difference between men and women in the distribution of their responses! And in both 1972 and 2006, the proportion of women who said "very happy" was a little bit higher than the proportion of men who gave that response (though again, in neither year was the difference distinguishable from chance fluctuations).

So what is everyone talking about? Well, some economists fit a complicated statistical model (called an "ordered probit") to the whole sequence of survey results from 1972 to 2006, and this analysis suggests that women have become a little tiny bit less happy relative to men over that whole time period. But the effect is so small that you can't actually see it in the statistical analysis for any one year; the effect is much smaller than the amount of year-to-year jiggle. That's true even through the General Social Survey involves a huge sample, much bigger than is normally used for opinion polls: 4,500 people in 2006.

Hat tip: Steven Levitt at the Freakonomics blog

Should schools teach happiness?

Richard Layard certainly thinks so. In a new article in the Summer 2007 edition of the LSE magazine CentrePiece, the happiness guru argues that a major purpose of schools must be to help develop good and happy people - especially at a time when growing numbers of children are suffering from emotional disturbance. He calls for "educational revolution in which a central purpose of our schools is to teach young people about the main secrets of happiness for which we have empirical evidence". See: Happiness and the teaching of values (PDF).

50% of young people say that their main ambition is to be happy: it’s the most commonly stated ambition and very sensible too (Park et al, 2004). Let’s help them. I have no doubt that new institutions will also develop for adults. But from a public policy perspective, we must start with schools. This is a good moment. People are worried about young people from many angles. We have good tools with which to help them. The key need is to create a profession of PSHE teachers, who give evidence-based teaching that changes lives, and that goes on to 18.

But yesterday's Financial Times leader, Happiness lessons, is sceptical:

The first problem is that happiness is not a teachable subject. It is famously elusive and may be unattainable. Pursuing it as an aim is difficult since it is more readily gained as a side-product of some other achievement or condition.

Happiness is also too varied to teach: a single set of tools will not work for everyone. One pupil may derive great pleasure from being kind to others - another from being the person on the receiving end of that kindness. Where one childmay be happily fulfilled taking ona tough challenge, another mayfind more happiness with a less driven approach.

Comments welcome. Can we really teach happiness? And should we?

Ten indicators for a happy society

Just about everyone seems to be writing about happiness these days - even investment bankers. Deutsche Bank economist Stefan Bergheim analyses 22 rich countries, and comes up with four varieties of capitalism: the happy variety, the less happy variety (Germany, Spain, France, Belgium and Austria), the unhappy variety (Portugal, Italy and Greece), and the Far Eastern variety (Japan and Korea). So which countries benefit from happy capitalism? it's the usual suspects - the Scandinavians and the Anglo-saxons:

The happy variety of capitalism: Australia, Switzerland, Canada, the UK, the US, Denmark, Sweden, Norway and the Netherlands as well as (to a lesser degree) Finland and New Zealand have organised society and institutions in such a way that they provide the conditions that are important for human happiness.

Lest American or British readers get too excited, Bergheim adds a coda:

Over the last ten years it is above all the Irish, the Spanish and the Scandinavians that have succeeded in implementing considerable happiness-enhancing changes.

Bergheim's paper, The happy variety of capitalism: Characterised by an array of commonalities (PDF), identifies ten commonalities or ''indicators for a happy society" from a cluster analysis of these countries:

1. High degree of trust in fellow citizens
2. Low amount of corruption
3. Low unemployment
4. High level of education
5. High income
6. High employment rate of older people
7. Small shadow economy
8. Extensive economic freedom
9. Low employment protection
10. High birth rate

One can quibble about one or two, but the list seems broadly right. However it is notable that Bergheim glosses over child poverty and inequality of income and wealth. These show greater divergence between the Anglo-saxon and Scandinavian countries than his analysis suggests. Likewise gender equality, or measures of 'active citizenship' and political engagament.

The key lesson of much recent cross-national happiness research, and the recent debates about social Europe, is that there is more than one path to economic prosperity and to high levels of subjective well-being. One is the Scandinavian/Nordic model of social democratic capitalism - more recenly dubbed 'flexicurity'. The other is the Anglo-saxon model of liberal capitalism - the so-called 'Anglosphere'. They each have their pros and cons, but both are associated with low unemployment, robust economic growth, and above-average levels of happiness and life satisfaction.

UPDATE: The Economist blog, Free Exchange, is more sceptical about the paper, particularly its policy conclusions: That's enough happynomics

There's nothing new in the data: happiness correlates positively with wealth, education and trust, negatively with corruption and unemployment. But the conclusion is a touch unusual, coming from an investment bank. For governments:

Happiness and life satisfaction should be explicit policy objectives

Eeek. To do Deutsche the courtesy of taking its paper seriously, has it given any thought to what would follow? Governments telling us how happy we are, civil servants walking around with absurd smiles on their faces, public festivities day in day out, holidays for every trade and age. A favourite slogan of Stalinism, in the depths of the terror, held that "life is better and merrier than ever before".

No! Enough social engineering, even in the name of happiness! let me be miserable in my own way, that's what would make me happy.   

 

Happy-clappy

If proof were needed of the growth of the 'happiness industry', it comes in the plethora of forthcoming conferences on the subject. Here are the ones I've comes across; there could well be others:

* Happiness and the Meaning of Life, University of Birmingham, 19 May 2007

* Wellbeing: a common approach, London, 22 May 2007

* Happiness and its Causes, Sydney, 14-15 June 2007

* International Conference on Policies for Happiness, Siena, 14-17 June 2007

* International Conference on Subjective Well-Being and Subjective Indicators of Quality of Life, Berlin, 5-6 July 2007

* Happiness in Global Perspectives & Local Interpretations, Bangkok, 18-19 July 2007

* The 8th Conference of the International Society for Quality-of-Life Studies, San Diego, 6-9 December 2007

More pursuit of happiness

Will Wilkinson, keeper of the Happiness and public policy weblog, has published a new Cato Institute report (Policy Analysis no. 590): In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?

Like his posts, it is thought provoking. Here is the excutive summary:

"Happiness research" studies the correlates of subjective well-being, generally through survey methods. A number of psychologists and social scientists have drawn upon this work recently to argue that the American model of relatively limited government and a dynamic market economy corrodes happiness, whereas Western European and Scandinavian-style social democracies promote it. This paper argues that happiness research in fact poses no threat to the relatively libertarian ideals embodied in the U.S. socioeconomic system. Happiness research is seriously hampered by confusion and disagreement about the definition of its subject as well as the limitations inherent in current measurement techniques.

In its present state happiness research cannot be relied on as an authoritative source for empirical information about happiness, which, in any case, is not a simple empirical phenomenon but a cultural and historical moving target. Yet, even if we accept the data of happiness research at face value, few of the alleged redistributive policy implications actually follow from the evidence. The data show that neither higher rates of government redistribution nor lower levels of income inequality make us happier, whereas high levels of economic freedom and high average incomes are among the strongest correlates of subjective well-being. Even if we table the damning charges of questionable science and bad moral philosophy, the American model still comes off a glowing success in terms of happiness.

If you want to hear Will in full flight, you can hear him interviewed by ABC Radio's Counterpoint programme, and his latest Cato podcast with Anastasia Uglova.

The pursuit of happiness

Can you stay happier for longer if you really try? Or is the pursuit of happiness a fruitless struggle?

The April issue of Scientific American has an article about Sonja Lyubomirsky, professor of psychology at UC Riverside. The conclusion of her research, as reported in the SciAm article, The Science of Lasting Happiness, is that it is possible to lastingly increase your happiness, but this takes work. Through consistent application of intentional activities, such as “random acts of kindness”, we can become happier and stay that way.

Skeptical of self-help books offering empirically untested advice, Lyubomirsky has written her own book, The How of Happiness, due out at the end of this year. In the meantime, two of here recent papers provide a good summary of Lyubomirsk's research:

(with Kennon Sheldon) Achieving sustainable gains in happiness: Change your actions, not your circumstances (PDF). Journal of Happiness Studies, 2006, volume 7.

(with Julia Boehm) The promise of sustainable happiness (PDF). In S. J. Lopez (Ed.), Handbook of positive psychology. Oxford University Press, in press.

Got to go now - I'm off to do something kind for someone!

Unhappy about happiness research

The always readable Cato Institute gadfly Will Wilkinson has not one, but two, long posts about the supposed evils of trying to measure happiness. I only provide brief excerpts - so read the whole thing.

In the first, Effective Policy and the Measurement of Human Well-Being, he lambasts economists Andrew Oswald and Danny Blanchflower for daring to suggest that policy makers might want to measure well-being:

Human well-being, as opposed to the several dimensions or components of well-being, is pretty much impossible to measure. Why? Because the specific nature of human well-being is relative to the individual and the components of well-being are diverse and must often be traded against one another. 

His second post has the wonderful title This Is My Dataset. There Are Many Datasets Like It, but This One Is Mine...

Having read a huge number of studies on "happiness research" over the past year or so, I have concluded that the data is not very good and tells us little about happiness as most of us intuitively understand it. In fact, some of the problems with the data seem so damning, and so daunting, that it has become a matter of some surprise to me that more researchers don't see the alleged problems as damning or daunting at all, and just proceed pretty much as usual.

Now, maybe my analysis of the difficulties in measuring happiness with surveys (which I would be happy to share at some other time) is wrong. But even if I and other critics of the data are wrong, it appears that many of the best criticisms aren't taken very seriously, even when they are duly noted. ...And there also seems to be a willingness to cite just about anything that superficially seems to support the validity of the measurement instrument -- a sign of a kind of confirmation bias.

Confirmation bias in the social sciences. Shome mishtake, shurely?