Two Thought Experiments

1. 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?

2. The Economics of Happiness 2009 H. Chase Stone Lecture at Colorado College Miles Kimball

3. Outline • Theory • New Empirical Investigations

4. 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

5. 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.

6. Two Definitions of “Happiness” • The Greatest Good for an Individual • Feeling Happy

7. 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

8. 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.

9. Measuring Utility: The Modern Tradition of Economics • Look at an individual’s 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

10. 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?

11. 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 one’s political beliefs in order to be happier. • Charles Schultz, author of “Peanuts”

12. 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 people’s feelings are at a given time.

13. 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 one’s child through college. • Having a baby? • Doing one’s duty.

14. The Nature of Happiness (What Makes Us Feel Happy)

15. Key Facts about What Makes Us Feel Happy #1: Easterlin Paradox #2: Hedonic Adaptation

16. The Easterlin Paradox

17. 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 1950’s. • 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.

18. 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?

19. Fact #1 • In the long run, people can become better off without feeling happier.

20. 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.

21. Happiness by Income Quintile

23. “The Paradox of Declining Female Happiness”Betsey 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 women’s happiness has declined both absolutely and relative to male happiness. The paradox of women’s declining relative well-being is found examining multiple countries, datasets, and measures of subjective well-being, and is pervasive across demographic groups.

24. 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 emerging—one with higher subjective well-being for men. Our findings raise provocative questions about the contribution of the women’s movement to women’s welfare and about the legitimacy of using subjective well-being to assess broad social changes.

25. Fact #1 • In the long run, people can become better off without feeling happier.

26. 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

27. Fact #2 about Happiness • Happiness depends more on changes than on the absolute level of one’s circumstances. • Analogy: We have no altimeter in our brains, but we can tell whether we are going up or down.

28. 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 one’s daily actions

29. Elation and Hedonic Adaptation • Because it is based on recent news, elation fades, • News doesn’t 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.

30. The Evolutionary Psychology of Elation and Dismay • Functionally, elation and dismay may motivate cognitive processing—much 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

31. 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)

32. 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? • Pinker’s cheesecake

33. 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

34. How to Raise Happiness in the Long Run (cont.) 4. Positive attitudes • Gratitude • Forgiveness • Acceptance of one’s situation • Raising one’s income without sacrificing sleep, exercise, time with friends, … • Raising one’s social rank

35. The Problem with Happiness from Social Rank • The usual strategies for raising social rank are a zero sum game—anything 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

36. Why are Utility and Happiness Confused? • Because they are dramatic, elation and dismay may dominate people’s 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.

37. 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.

38. Why Doesn’t Rising Income for the Lower Income QuintilesLead 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 one’s happiness takes time.

39. 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).

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

41. 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.

42. 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

43. 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.

49. 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.

50. 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?)”