Social Preferences and Happiness in the Short Run and Long Run

1. Social Preferences and Happiness in the Short Run and Long Run James Konow presentation to Symposium on Economics of Happiness University of Southern California

2. Social Preferences and Happiness • Background: Behavioral economics, in particular, social preferences including distributive justice, altruism, cooperation, trust and reciprocity • Question: What relationship, if any, exists between social preferences and happiness (or subjective well-being)? • Projects examine subjective well-being (SWB) and its relationship to need, equity, altruism and materialism Two experimental studies on generosity and happiness: • The Hedonistic Paradox: Is Homo Economicus Happier? • Focuses on the relationship between generosity and long run (i.e., average or stable) happiness and the causes of that relationship • Mixed Feelings: Theories and Evidence of Warm Glow and Altruism • Examines generosity and short run (or transient) happiness

3. The Hedonistic Paradox:Is Homo Economicus Happier?Konow and Earley Two principal questions: • Are more generous individuals happier, on average, than less generous people? If, so, in what specific ways are they happier, i.e., in what dimensions of subjective well-being? • What is the causal relationship between generosity and happiness? Does generosity cause happiness, or does happiness cause generosity, or are both caused by some tertiary factor? • In light of the results, the focus is mostly on long run happiness

4. Experimental Design • Both this and the other study employ a similar design Variation on the Dictator Game: • All subjects complete a questionnaire that includes multiple measures of different dimensions of SWB and of material well-being • One subject, called the “dictator,” is endowed with a fixed sum of money, viz., $10 • The dictator may share his/her endowment with an anonymous counterpart, called the “recipient,” who is in another room • Recipients have no recourse and must simply accept whatever dictators give (even nothing) • All subjects complete a brief questionnaire that repeats certain questions on short run affect (or feelings)

5. Results Giving is related to: • Higher overall happiness • Higher positive affect • Lower negative affect • Higher peak happiness • Higher psychological well-being Giving is not significantly related to: • Mood (short run feelings) • Satisfaction with life Nevertheless, some types of SWB are sensitive to the measure used and are sometimes only weakly significant: overall happiness, affect and psychological well-being

6. Hypotheses about Findings • Generosity hypothesis: Generosity causes happiness, i.e., people give for the subsequent improvement in mood. • Happiness hypothesis: Happiness causes generosity, i.e., people who are in a better mood just before the allocation will be more generous. • Money hypothesis: Money (i.e., greater material well-being) causes both higher long run happiness and greater generosity. Conclusions: • Every prediction of the preceding three hypotheses is contradicted by the evidence.

7. Eudaimonic Hypothesis • Greater long run happiness is caused, in part, by a personality trait that has been called psychological well-being or, in Maslow’s terms, self-actualization. • Self-actualizing individuals are more intrinsic, e.g., generous towards others, rather than extrinsic, e.g., concerned with material rewards. • Self-actualization is a stock variable that can change gradually; it grows with repeated intrinsic acts. • Intrinsic behavior can be costly in terms of short run happiness, but it is like an investment that contributes to a higher stock of self-actualization in the long run. • Higher long run (average) happiness is an unintended by-product of a greater stock of self-actualization.

8. Results All the predictions of self-actualization are borne out. More self-actualizing individuals register: • Higher overall happiness • Higher peak happiness • Higher long run positive affect • Lower long run negative affect Other results: • Greater material well-being is not associated with higher long run happiness • Greater generosity is not associated with higher short run happiness • More self-actualizing individuals are more likely to give in a dictator experiment • The correlation between happiness and generosity is positive but possibly weak since neither directly causes the other, rather self-actualization is causally related to both

9. Mixed Feelings: Theories and Evidence of Warm Glow and Altruism Two main questions: • What is the motive for generosity? • What is the relationship between generosity and short run feelings? One theory of altruism is warm glow: people give for the good feeling it produces • Here I focus on the latter question and how it is related to the purpose of the giving • In particular, I identify the changes in short run affect (SRAD) of dictators by comparing a measure of short run affect just after the allocation decision with one just before decision (subtract later measure from earlier one to form a difference)

10. Design • Four dictator treatments (a through d) differ in ways that affect the social preference they trigger (e.g., equity, need), which, in turn, determines what subjects consider to be the “right” gift to recipients Compare the changes in affect of more generous dictators in each treatment with those of two other groups: • Less generous dictators in each of the respective treatments • Control treatment: Dictators are paired with unendowed student recipients but are prevented from transferring any of their endowment; the endowments and procedures are common knowledge

11. Predictions • The paper introduces a theory of altruism called “conditional altruism” Conditional altruism predicts the following: • Altruism is conditioned on a set of distributive principles that imply that the “right” gift is lowest in Treatment a, and progressively higher in Treatments b, then c and highest in d • The highest SRAD is obtained, on average, when the dictator gives what he believes to be the “right” amount according to the relevant distributive principle • When the right amount is low, smaller gifts produce the higher SRAD, whereas when the right amount is high, larger gifts produce higher SRAD • Thus, the picture is of “mixed feelings:” greater generosity can have a favorable or unfavorable effect on feelings

13. Results • When the right amount is lowest in Treatment a, small gifts produce the highest SRAD • When the right amount is highest in Treatment d, large gifts produce the highest SRAD • SRAD is highest in the Control treatment: SRAD at best matches this level in the other treatments when dictators give the right amount Further conjecture: • Giving more or less than what the dictator believes is the right amount produces lower SRAD • Dictator beliefs about the right amount center around two values: • right amount according to impartial individuals, and • gifts of $0-$1 due to self-serving beliefs • Nonlinear regressions on partitioned subsets of gifts seem consistent with this conjecture

14. Conclusions • Acting on social preferences can affect both long run and short run happiness • In the short run, such behavior can at best match the happiness of a control group that is prevented from sharing; giving more or less than the right amount results in lower short run happiness • In the long run, the relationship between generosity and happiness is more complex: acts of generosity contribute to a type of personality (self-actualizing) that enjoys, on average, greater happiness in the long run • The evidence from these studies is suggestive: it should not be taken as conclusive, but rather as an impetus to explore whether the results can be replicated and whether these conjectures are robust