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Primer / Frequently Asked Questions
on the “economics of happiness”


Contents

1 What is subjective well-being (SWB)? What is satisfaction with life (SWL)? What is happiness?
2 Why are economists working on this?
3 Can you point me to some introductory or review literature to understand the academic approach to SWB?
4 Where can I read about policy approaches based on SWB?
5 Are there guidelines on measuring subjective well-being?
6 I often hear “happiness index”; is this the same as measuring SWB? If not, what’s the difference?
7 How is it possible to compare subjective well-being across different countries, individuals, and cultures? How can subjective evaluations possibly have comparability?

1 What is subjective well-being (SWB)? What is satisfaction with life (SWL)? What is happiness?

Happiness” is often used by economists to refer to the answer you get when you ask people to quantify how good their life feels, overall. The best way to phrase this kind of question is to ask about satisfaction with life. The OECD (2013a) phrasing is standard:

The following question asks how satisfied you feel, on a scale from 0 to 10. Zero means you feel “not at all satisfied” and 10 means you feel “completely satisfied”. Overall, how satisfied are you with life as a whole these days?

Slightly more generally, this question is an example of a cognitive evaluation of life. The other important question in this category is the Cantril Ladder, which is used in the Gallup World Poll.

Even more generally, these questions are examples of measures of subjective well-being, i.e., individuals’ subjective (though quantitative) evaluation of their own experience. In fact, the word happiness is often used informally in the title of academic papers to refer to whichever kind of subjective well-being is being used.

More specifically, or technically, happiness may refer to the emotional state of feeling happy. This is more fleeting than cognitive evaluations. These emotional (or “affective” in psychology-speak) states are also a form of subjective well-being. For instance, OECD (2013a) mentions the following examples:

The following questions ask about how you felt yesterday on a scale from 0 to 10. Zero means you did not experience the feeling “at all” yesterday while 10 means you experienced the feeling “all of the time” yesterday. I will now read out a list of ways you might have felt yesterday.

How about happy? [0-10]
How about worried? [0-10]
How about depressed? [0-10]

Note that these are again subjective reports, but quantitative, and that they rely on individuals as the sole world experts on how life feels to them.

2 Why are economists working on this?

For many decades, economists have used a speculative technique in order to make “normative” statements about what outcomes are better or worse for people. This old approach, which we call “revealed preferences,” relies on observed choices in order to infer what is best for people. If (1) people have choices over what matters to their lived experience, and (2) they make decisions that are optimal for their wellbeing, and (3) those decisions are observable, then relying on revealed preferences is a workable approach.

By contrast, in a world in which important parts of life are not left to individual decision-making, or people make systematic mistakes in choosing what’s best for themselves, or their choices over important parts of their lives are not observable to economists, then something better is needed. Appealing to people’s reported life satisfaction is a way to keep our ideas about what is good for humans accountable to empirical fact. It enables previously non-comparable social aspects of life to be assessed consistently with more traditional economic outcomes.

There are psychologists and some other disciplines which make use of subjective wellbeing data, but because economists are comfortable with large datasets and often think about big-picture normative policy questions, they have made substantial contributions to our understanding of what makes for happy individuals, communities, and countries.

3 Can you point me to some introductory or review literature to understand the academic approach to SWB?

Helliwell and Barrington-Leigh2010: “Understanding Subjective Well-Being,” Canadian Journal of Economics, Vol. 43, Issue 3, pp. 729-753

Clark2018: Four Decades of the Economics of Happiness: Where Next?

4 Where can I read about policy approaches based on SWB?

The Global Happiness Policy reports, at happinesscouncil.org now give annual updates on policy thinking.
In February 2020, What Works Wellbeing issued a nice summary about the implications of putting wellbeing at the heart of policy, with somewhat of a UK-focus.

5 Are there guidelines on measuring subjective well-being?

Yes, the OECD (OECD2013b) and the U.S. National Academies of Science (Stone et al.2014) have references for national statistical agencies, and others, for how to measure the various types of subjective wellbeing. Two dimensions are described in the first FAQ on this page.

More generally, experts (and these two reference guides) conceive of three or four dimensions of subjective well-being: cognitive evaluations like the measure above, positive affect, negative affect, and something more akin to meaningfulness of life.

usnac-2013

6 I often hear “happiness index”; is this the same as measuring SWB? If not, what’s the difference?

Nope, subjective well-being is often measured by a single question. This means reported values for a given population are simple averages of responses to a single question. Technically speaking, that means they are not an index. An index is a weighted sum of several different numbers; for instance, the Human Development Index (HDI) is essentially the (geometric) average of income, education, and life expectancy, things which cannot normally or sensibly be added together.

While many indices include something like “happiness” in their name (The Happiness Index, Gross National Happiness, Gross National Well-being, etc), showing a growing interest in measures of wellbeing, they tend to include both subjective results and objective data such as GDP per capita, life expectancy, etc. Including various components introduces the issue of how to weight them, particularly since weighting tends to heavily impact the levels and rankings of indices, and as such they necessarily reflect the preference of the designer.

Barrington-Leigh and Escande (2018) and Barrington-Leigh (2016) are critical of using this kind of index with weights that are essentially random, and more importantly unaccountable to anything.

All that said, one often hears the term happiness index used to refer to a non-index life satisfaction or other cognitive evaluation of life. In this context, “index” is a misnomer, and is just used to mean “measure”.

7 How is it possible to compare subjective well-being across different countries, individuals, and cultures? How can subjective evaluations possibly have comparability?

Although answers to cognitive evaluation of life questions are indeed conditioned by culture, personality, past experience, and knowledge, the available data from more than 140 countries show that differences of subjective life evaluations among individuals and across nations are largely explicable by the same life circumstances and in similar ways, across the globe (Helliwell and Barrington-Leigh2010). It appears that this kind of subjective wellbeing is tapping into something universal.

References

   Barrington-Leigh, Christopher (2016) ‘The role of subjective well-being as an organizing concept for community indicators.’ In Community Quality of Life and Wellbeing: Best Cases VII, ed. Rhonda Phillips Meg Holden and Chantal Stevens Community Quality-of-Life Indicators (Springer)

   Barrington-Leigh, Christopher, and Alice Escande (2018) ‘Measuring progress and well-being: A comparative review of indicators.’ Social Indicators Research 135(3), 893–925

   Clark, Andrew E. (2018) ‘Four decades of the economics of happiness: Where next?’ Review of Income and Wealth 64(2), 245–269

   Helliwell, John F, and Christopher P Barrington-Leigh (2010) ‘Measuring and understanding subjective well-being.’ Working Paper 15887, National Bureau of Economic Research, April

   OECD (2013a) OECD Guidelines on Measuring Subjective Well-being

   __ (2013b) OECD Guidelines on Measuring Subjective Well-being (OECD Publishing)

   Stone, Arthur A, Christopher Mackie et al. (2014) Subjective well-being: Measuring happiness, suffering, and other dimensions of experience (National Academies Press)