The Economics of Happiness

The Economics of Happiness is a relatively new discipline which is trying to find an answer to the question: “What makes people happy?” Happiness is understood as “subjective well-being” which is defined simply as a feeling of satisfaction with individual’s own life. Most of research in Economics of Happiness was trying to identify determinants of subjective well-being. The most usual approach consists in statistical enquiry in which respondents are asked how satisfied they feel with their life (measured usually on the scale for example from 1 to 10). This makes possible to quantify “happiness” and then apply statistical and econometric methods. Surprisingly, this approach has many applications and has so far yielded many new insights. I will now mention one of them which was achieved by Swiss economist Bruno Frey about happiness in relation to marriage and is shown in this graph (SWB is measured on the scale from 1 to 10):

For those who are disappointed by this rather gloomy result, I have also some good news. It seems that the shape of the curve depends on how similar the partners engaged in relationship are. If their personal characteristics are not too different, the shape of the curve is not so sharp. Therefore the satisfaction does not decrease so quickly in this case. The following two graphs show the influences of the size of differences in wage and education on satisfaction with marriage. The dashed curve showes the situation when difference between partners is small and the solid line the case when this difference is large:

Here you can also find a very interesting article which describes how you can get from happiness to the value of clean air:

http://www.voxeu.org/index.php?q=node/3959

References: Frey, B.S.: Happiness. A Revolution in Economics. MIT Press, 2008

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How pure is economics?

Where do you think is the place of economists on this scale?

http://xkcd.com/435/

A “modest” intellectual discipline

We often hear jokes like these:

Why did God create economists? In order to make weather forecasters look good.

Economists were able to forecast 9 out of last 5 recessions.

Economist is someone who will be able to explain tommorow why the things he had forecasted yesterday didn`t happen today.

But seriously, doesn`t the failure of economists to forecast the future mean that it is in some sense useless? Is the use of sophisticated mathematical models useful if they are unable to offer good predictions? Shouldn`t we re-evaluate its contemporary paradigm and replace it by something else? Gilles Saint-Paul, a French economist, recently wrote an interesting article on the topic. You can find it here:

http://www.voxeu.org/index.php?q=node/3996