New Directions in Happiness Research

1. New Directions in Happiness Research Miles Kimball

2. Cognitive Economics • Definition: Taking seriously data other than actual choices in the wild. • Must be linked back to actual choices in the wild. • Analogous to Cognitive Psychology vs. B.F. Skinner. • Complementary to Psychological Economics, since loosening the constraints on the utility function raises the value of additional data.

3. Examples of Cognitive Economics • Experimental Economics. • Neuroeconomics. • Survey measures of expectations. • Survey measures of preference parameters based on hypothetical choices. • Happiness research.

4. “Happiness,” as defined operationally by psychologists • On a scale from one to seven, where one is “extremely unhappy” and seven is “extremely happy,” how do you feel right now?

5. The Validity of Self-Reported Happiness Correlated with • observer ratings of happiness • structured coding of facial expressions • electrical measures of face muscle activation • voice tone • skin conductance, heart rate, blood pressure, etc. • writing speed • judgment of probabilities • word association and word completion • startle reflex • left pre-frontal cortex activity (which can also be induced by seeing pictures of a smiling baby and reduced by seeing pictures of a deformed baby)

6. 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?)”

9. World Values Survey Global Happiness Question "Taking all things together, would you say you are • Very happy • Quite happy • Not very happy • Not at all happy 9. Don’t Know [Do NOT READ OUT]”

10. Other Measures of Subjective Well-Being: Life Satisfaction On a scale from 1 to 10, how satisfied are you with your life?

11. Distinguishing preferences and happiness as a matter of logic. • Preferences (Represented by Lifetime Utility) = The extent to which people get what they want, where what they want is indicated by their choices. • Happiness (Current Affect) = How positive people’s feelings are at a given time.

12. 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.

13. The Easterlin Paradox

14. Revealed Preference: Migration Flows • 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.

15. The Ethical Question • People’s own choices and feelings are the two non-paternalistic indicators we have for individual welfare(what makes an individual better off in the sense relevant for policy). • A priori, both seem useful. • What if public policy choice A accords with what people would choose, but policy choice B would make them feel best?

16. The Standard View in Psychology • Currently, the standard view among psychologists and most economists working with happiness data—articulated most forcefully by Daniel Kahneman—is that a present discounted value of measured happiness is a good indicator of what people should be maximizing. • To the extent that people are maximizing something else, it is viewed as a mistake. • Factual mistakes people make in predicting their own future happiness are thought to be an important reason people make these optimization mistakes. (Return to this below.)

17. Our View • We are questioning this orthodoxy. • When well-informed and thoughtful, we view people’s choices as the best indication of their individual welfare. • People do often make optimization errors. • But much of what this orthodoxy takes as evidence of optimization errors, we take as evidence that utility and “happiness” are not the same thing.

18. The Scientific Question: What is the Relationship Between Preferences and Happiness? • Both felt happiness and choice-based preferences are well-defined, observable concepts. • Thenature of the relationship between the standard psychological concept of happiness and the standard economic concept of preferences is an open empirical question.

19. Why the Story about Preferences and Happiness Can’t be Simple: • Easterlin Paradox • Hedonic Adaptation

20. Hedonic Adaptation(Mean Reversion of Affect) Cross-sectional evidence of hedonic adaptation for • incarceration • loss of the use of limbs • serious burns • death of a spouse • winning the lottery • winning £10,000 raises affect by six times as much in the first year as £10,000 per year in additional income. Dynamics of national happiness after big news: • “Unhappiness after Hurricane Katrina”

21. Sketch of our Integrated Theory of Utility and 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 is the output of a household production function (like health, entertainment, or nutrition.)

22. ‘Elation’ and ‘Dismay’ • ‘elation’ = the component of happiness due to recent news about lifetime utility. • ‘dismay’ = -elation

23. Elation and Hedonic Adaptation • Because it is based on recent news, elation will be strongly mean reverting. Intuitively, • 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. • Relevance to the Hedonic Treadmill, a.k.a. the Easterlin Paradox.

24. Unhappiness After Hurricane Katrina Miles Kimball Helen Levy Fumio Ohtake Yoshiro Tsutsui

29. Possible Explanations • Response of Happiness to News about Lifetime Utility • Altruism • Self-Interest (elk) • 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.

30. 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.

31. Serious Harm to Self-Interest? The Index of Consumer Sentiment

34. Arguments Against the “Graphic Images” Explanation • Heavy news coverage of Katrina continued for 4 weeks, but happiness returned to normal after two weeks. • This can’t 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 meaning—or at least the details—of the images seems to matter.

37. 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.

42. Cautions about Regression of Happiness on Income • Measurement error in judgements of better/worse financial circumstances. • Classical • Correlated • Recent news versus old news • Cross-sectionally, the level of income seems to have a strong effect on happiness even apart from the news effect. (Not a totally clean test.)

47. 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 Pakistan—more than one would suspect from the donation data. • Katrina and Rita: >$2.65 Billion • South Asian Tsunami: >$1.55 Billion

48. Linking Happiness and Preferences Any known, systematic relationship between happiness and preferences would • provide an important bridge between psychologyandeconomics. • allow psychological data and theory to be used in economics in a way that is complementary to standard economic data and theory. • allow all the tools of economics to be brought to bear toward understanding happiness.

49. Why Happiness Matters for Economics (Our View) • Preference for Happiness: Other things being equal, people prefer to be happy. • News and Happiness: Short-run spikes and dips in happiness • signal what people consider good and bad news, • which in turn signals what they prefer.

50. Preference for Happiness Axiom: Part 1 • Preferences depend on the joint stochastic process of K: vector of state variables X: vector of control variables H: vector of outputs of household production functions other than happiness A: current happiness (affect). • The current and past values of these variables are all observable to the agent.