September 23, 2023

What Is Happiness Economics?

Happiness economics is a discipline of economics that acknowledges happiness and wellbeing as vital end result measures, alongside measures sometimes used, equivalent to employment, training, and well being care.

Economics emphasizes how particular financial/monetary traits have an effect on our wellbeing (Easterlin, 2004).

For instance, does employment lead to higher well being and longer lifespan, amongst different metrics? Do individuals in wealthier international locations have entry to raised training and longer life spans?

In the previous few a long time, there was a shift in economics, the place researchers have acknowledged the significance of the subjective ranking of happiness as a useful and fascinating end result that’s considerably correlated with different vital outcomes, equivalent to well being (Steptoe, 2019) and productiveness (DiMaria et al., 2020).

Broadly, happiness is a psychological state of being, sometimes researched and outlined utilizing psychological strategies. We frequently measure it utilizing self-report measures moderately than goal measures which might be much less weak to misinterpretation and error.

Together with happiness in economics has opened up a completely new avenue of analysis to discover the connection between happiness and cash.

Andrew Clark (2018) illustrates the variability within the time period happiness economics with the next examples:

  1. Happiness is usually a predictor variable, influencing our choices and behaviors.
  2. Happiness may be the specified end result, so understanding how and why some persons are happier than others is crucial.

Nevertheless, the connection between our conduct and happiness should be higher understood. Regardless that “being comfortable” is a desired end result, individuals nonetheless make choices that stop them from changing into happier. For instance, why can we select to work extra if our work doesn’t make us happier? Why are we sad even when our primary wants are met?

An instance of how happiness can affect decision-making

Generally, we’d select to not maximize a financial or monetary acquire however place significance on different, extra subjective outcomes.

As an instance: If confronted with two jobs — one which pays effectively however will carry no pleasure and one other that pays much less however will carry a lot pleasure — some individuals would like to maximise their happiness over monetary acquire.

If this determination have been evaluated utilizing a utility framework the place the one valued outcomes have been sensible, then the choice would appear irrational. Nevertheless, this situation means that psychological outcomes, such because the expertise of happiness, are as essential as different socio-economic outcomes.

Economists acknowledge that subjective wellbeing, or happiness, is a necessary attribute and typically a fascinating end result that may inspire our decision-making.

In the previous few a long time, economics has shifted to incorporate happiness as a measurable and very important a part of basic wellbeing (Graham, 2005).

The consequence is that typical financial questions now additionally have a look at the impression of employment, funds, and different financial metrics on the subjective ranking and expertise of happiness at particular person and nation ranges.

Concept of the Economics of Happiness

Theory of the economy of happinessThe idea of the economics of happiness could be summarized as follows (Bruni, 2007):

Happiness is such a significant end result in society and financial exercise that it should be concerned in coverage making. The subjective measure of happiness is as vital as different typical measures utilized in economics.

Many components can contribute to happiness. On this submit, we take into account the position of cash. The connection between happiness, or subjective wellbeing, and cash is assumed to be constructive: Extra money means larger happiness.

Nevertheless, the connection between cash and happiness is paradoxical: Extra money doesn’t assure happiness (for a wonderful evaluate, see Graham, 2005).

Particularly, low ranges of earnings are correlated with unhappiness. Nevertheless, as our particular person wealth will increase and our primary wants are met, our wants change and differ of their significance.

Initially, our happiness is affected by absolute ranges of earnings, however at a sure threshold, we place significance on relative ranges of earnings. Realizing how we rank and evaluate to different individuals, by way of wealth and materials possession, influences our happiness.

The connection between wealth and happiness continues to extend, however solely to a sure level; at this stage, extra wealth doesn’t assure extra happiness (Easterlin, 1974; Diener et al., 1993).

This can be at odds with our on a regular basis lived expertise. Most of us select to work longer hours or a number of jobs in order that we make more cash. Nevertheless, what’s the level of doing this if cash doesn’t enhance our happiness? Why can we appear to assume that more cash will make us happier?

Historical past of the economics of happiness

The connection between economics and happiness originated within the early Seventies. Brickman and Campbell (1971, as cited in Brickman et al., 1978) first argued that the everyday outcomes of a profitable life, equivalent to wealth or earnings, had no impression on particular person wellbeing.

Easterlin (1974) expanded these outcomes and confirmed that though wealthier individuals are typically happier than poor individuals in the identical nation, the typical happiness ranges inside a rustic remained unchanged even because the nation’s general wealth elevated.

The inconsistent relationship between happiness and earnings and its sensitivity to vital earnings thresholds make this subject so attention-grabbing.

There’s some proof that wealthier international locations are happier than others, however solely when evaluating the rich with the poor (Easterlin, 1974; Graham, 2005).

As international locations change into wealthier, residents report larger happiness, however this relationship is strongest when the place to begin is poverty. Above a sure earnings threshold, happiness not will increase (Diener et al., 1993).

Curiously, individuals are likely to agree on the amount of cash wanted to make them comfortable; however past a sure worth, there’s little enhance in happiness (Haesevoets et al., 2022).

Measurement challenges

Measuring happiness precisely and reliably is difficult. Researchers disagree on what happiness means.

It’s not the norm in economics to measure happiness by instantly asking a participant how comfortable they’re; as a substitute, happiness is inferred by means of:

  • Subjective wellbeing (Clark, 2018; Easterlin, 2004)
  • A mixture of happiness and life satisfaction (Bruni, 2007)

Moreover, happiness can discuss with an acute psychological state, equivalent to feeling comfortable after a pleasant meal, or an enduring state just like contentment (Nettle, 2005).

Researchers would possibly use completely different definitions of happiness and methods to measure it, thus resulting in contradictory outcomes. For instance, happiness may be used synonymously with subjective wellbeing and might discuss with a number of issues, together with life satisfaction and monetary satisfaction (Diener & Oishi, 2000).

It appears contradictory that wealthier nations are usually not happier general than poorer nations and that rising the wealth of poorer nations doesn’t assure that their happiness will enhance too. What might then be accomplished to extend happiness?

Can Cash Purchase Happiness? 5 Analysis Findings

What’s the relationship between earnings/wealth and happiness? To reply that query, we checked out research to see the place and the way cash improves happiness, however we’ll additionally take into account the constraints to the constructive impact of earnings.

Cash buys entry; jobs increase happiness

Overwhelming proof exhibits that wealth is correlated with measures of wellbeing.

Wealthier individuals have entry to raised healthcare, training, and employment, which in flip leads to larger life satisfaction (Helliwell et al., 2012). A certain quantity of wealth is required to satisfy primary wants, and satisfying these wants improves happiness (Veenhoven & Ehrhardt, 1995).

Rising happiness by means of improved high quality of life is highest for poor households, however that is defined by the place to begin. Entry to important companies improves the standard of life, and in flip, this improves measures of wellbeing.

Most individuals acquire wealth by means of employment; nonetheless, it’s not simply wealth that improves happiness; as a substitute, employment itself has an vital affiliation with happiness. Happiness and employment are additionally considerably correlated with one another (Helliwell et al., 2021).

Lockdown on happiness

The World Happiness Report (Helliwell et al., 2021) studies that unemployment elevated throughout the COVID-19 pandemic, and this was accompanied by a marked decline in happiness and optimism.

The pandemic additionally modified how we evaluated sure features of our lives; for instance, the connection between earnings and happiness declined. In any case, what’s the usage of cash if you happen to can’t spend it? In distinction, the affiliation between happiness and having a companion elevated (Helliwell et al., 2021).

Wealthier states smile extra, however is it actual?


If we took a snapshot of happiness and a rustic’s wealth, we might discover that richer international locations are likely to have happier populations than poorer international locations.

For instance, based mostly on the 2021 World Happiness Report, the highest 5 happiest international locations — that are additionally rich international locations — are Finland, Iceland, Denmark, Switzerland, and the Netherlands (Helliwell et al., 2021).

In distinction, the unhappiest international locations are those who are typically rising markets or have a decrease gross home product (GDP), e.g., Zimbabwe, Tanzania, and India (Graham, 2005; Helliwell et al., 2021).

At face worth, this is sensible: Poorer international locations most certainly produce other components related to them, e.g., larger unemployment, extra crime, and fewer political stability. So, based mostly on this cross-sectional knowledge, a rustic’s wealth and happiness ranges look like correlated. Nevertheless, over a extra prolonged interval, the connection between happiness and GDP is nil (Easterlin, 2004).

That’s, the subjective wellbeing of a inhabitants doesn’t enhance as a rustic turns into richer. Regardless that the wealth of varied international locations worldwide has elevated over time, the general happiness ranges haven’t elevated equally or have remained static (Kahneman et al., 2006). This is called a happiness–earnings paradox.

Easterlin (2004) posits 4 explanations for this discovering:

  1. Societal and particular person beneficial properties related to elevated wealth are concentrated among the many extraordinarily rich.
  2. Our diploma of happiness is knowledgeable by how we evaluate to different individuals, and this relative comparability doesn’t change as country-wide wealth will increase.
  3. Happiness will not be restricted to solely wealth and monetary standing, however is affected by different societal and political components, equivalent to crime, training, and belief within the authorities.
  4. Lengthy-term satisfaction and contentment differ from short-term, acute happiness.

Kahneman et al. (2006) present an alternate clarification centered on the tactic sometimes utilized by researchers. Particularly, they argue that the order of the questions requested to measure happiness and the way these questions are worded have a focusing impact. By way of the query, the participant’s consideration to their happiness is sharpened — like a lens in a digital camera — and their happiness must be over- or underestimated.

Kahneman et al. (2006) additionally level out that job developments like a increase or a promotion are sometimes accompanied by a rise in wage and work hours. Consequently, high-paying jobs usually lead to much less leisure time accessible to spend with household or on hobbies and might trigger extra unhappiness.

Not all that glitters is gold

Intensive analysis explored whether or not a sudden monetary windfall was related to a spike in happiness (e.g., Sherman et al., 2020). The findings have been combined. Generally, having more cash is related to elevated life satisfaction and improved bodily and psychological well being.

This increase in happiness, nonetheless, will not be assured, neither is it lengthy. Generally, people even want it had by no means occurred (Brickman et al., 1978; Sherman et al., 2020).

Think about lottery winners. These individuals win sizable sums of cash — sometimes extra intensive than a wage enhance — massive sufficient to impression their lives considerably. Regardless of this, analysis has persistently proven that though lottery winners report larger fast, short-term happiness, they don’t expertise larger long-term happiness (Sherman et al., 2020).

Listed here are some causes for this:

  • Earlier on a regular basis actions and experiences change into much less fulfilling when in comparison with a singular, uncommon expertise like profitable the lottery.
  • Folks habituate to their new life-style.
  • A sudden enhance in wealth can disrupt social relationships amongst family and friends members.
  • Work and hobbies sometimes give us small nuggets of pleasure over a extra prolonged interval (Csikszentmihalyi et al., 2005). These actions can lose their that means over an extended interval, leading to extra unhappiness (Sherman et al., 2020; Brickman et al., 1978).

Sherman et al. (2020) additional argue that lottery winners who resolve to stop their job after profitable, however don’t fill this newly accessible time with some kind of significant interest or curiosity, are additionally extra prone to change into sad.

Passive actions don’t present the identical happiness as work or hobbies. As an alternative, if lottery winners proceed to participate in actions that give them that means and require lively engagement, then they will keep away from additional unhappiness.

Happiness: Is it temperature or local weather?

Like most psychological analysis, a part of the problem is clearly defining the subject of investigation — a process made extra daunting when the subject falls inside two very completely different fields.

Nettle (2005) describes happiness as a three-tiered idea, starting from short-lived however intense on one finish of the spectrum to extra summary and deep on the opposite.

The primary tier refers to transitory emotions of pleasure, like when one opens up a birthday current.

The second tier describes judgments about emotions, equivalent to feeling glad together with your job. The third tier is extra advanced and refers to life satisfaction.

Throughout analysis, completely different definitions are used: Members are requested about emotions of (fast) pleasure, general life satisfaction, moments of happiness or satisfaction, and psychological wellbeing. The ideas are related however not equivalent, thus influencing the outcomes.

6 Fascinating Books and Podcasts on the Subject

Most books on happiness economics are textbooks. Though little doubt very attention-grabbing, they’re not the easy-reading books we desire to suggest.

As an alternative, beneath you will discover a variety of books written by economists that discover happiness. These ought to present a great springboard on the general subject of happiness and what influences it, in case any of our readers wish to choose up a extra in-depth textbook afterward.

If in case you have a happiness ebook you’ll suggest, please tell us within the feedback part.

1. Happiness: Classes from a New Science – Richard Layard


Richard Layard, a lead economist based mostly in London, explores in his ebook if and the way cash can have an effect on happiness.

Layard does a wonderful job of introducing matters from varied fields and framing them appropriately for the reader.

The ebook is aimed toward readers from various educational {and professional} backgrounds, so no expertise is required to get pleasure from it.

Discover the ebook on Amazon.

2. Happiness by Design: Change What You Do, Not How You Assume – Paul Dolan

Happiness by Design

This ebook has a extra sensible spin. The writer explains how we are able to use current analysis and theories to make small adjustments to extend our happiness.

Paul Dolan’s major thesis is that sensible issues could have a much bigger impact than summary strategies, and we should always change our conduct moderately than our considering.

The ebook is a fast learn (airport-perfect!), and Daniel Kahneman penned the foreword.

Discover the ebook on Amazon.

3. The Psychology of Cash: Timeless Classes on Wealth, Greed and Happiness – Morgan Housel

The Psychology of Money

This ebook will not be essentially about happiness economics, however it’s shut sufficient to the general theme that it’s value mentioning.

Since most individuals are involved with making more cash, this ebook helps educate the reader why we make the selections we do and the way we make higher choices about our cash.

This ebook is a worthwhile addition to any bookcase if you’re within the relationship between funds and psychology typically.

Discover the ebook on Amazon.

4. Happiness: The Science Behind Your Smile – Daniel Nettle


In case you are thinking about happiness general, then we suggest Happiness: The Science Behind Your Smile by Daniel Nettle, a professor of behavioral science at Newcastle College.

On this ebook, he takes a scientific strategy to explaining happiness, beginning with an in-depth exploration of the definition of happiness and a few of its challenges.

The analysis that he presents comes from varied fields, together with social sciences, drugs, neurobiology, and economics.

Due to its small measurement, this ebook is ideal for a weekend away or to learn on a airplane.

Discover the ebook on Amazon.

5 & 6. Desire to hear moderately than learn?

Considered one of our favourite podcasts is Intelligence2, the place main specialists in a selected discipline collect to debate a selected subject.

Money Can't Buy HappinessOne episode is devoted to the controversy on whether or not money can buy happiness. The debaters don’t restrict themselves to solely the subject of happiness — what it’s, how one can measure it — however prolong into different sensible matters equivalent to coverage making and the way this may be adjusted to vary the happiness of a inhabitants.

The Happiness LabOne other attention-grabbing spin on the happiness economics subject is how altruism can enhance happiness, particularly by donating cash to others.

This present’s host, Dr. Laurie Santos, argues that we are able to enhance our happiness by not hoarding our cash for ourselves however by giving it to others as a substitute. In case you are thinking about this episode, or any of the opposite episodes within the Happiness Lab podcast collection, then head on over to their web page.

Assets From

There are a number of assets accessible at for our readers to make use of of their skilled and private growth.

On this part, you’ll discover a number of that ought to complement any work on happiness and economics. For the reason that undercurrent of the subject is whether or not happiness could be improved by means of wealth, a number of assets have a look at happiness general.

Valued Residing Masterclass

Though information is energy, figuring out that cash doesn’t assure happiness doesn’t imply that purchasers will all of the sudden really feel fulfilled and glad with their lives.

Because of this, we suggest the Valued Residing Masterclass, for professionals to assist their purchasers discover that means of their lives. Somewhat than maintaining with the Joneses or chasing a high-paying job, professionals might help their purchasers join with their inside that means (i.e., their why) as a strategy to discover that means and acquire happiness.

Three free workout routines

If you wish to strive it out earlier than committing, have a look at the Which means & Valued Residing train pack, which incorporates three workout routines free of charge.

Advisable studying

Learn our submit on Success Versus Happiness for additional info on balancing happiness with success, in any area. This subject is poignant for readers who conflate happiness and success, and can information readers to raised perceive their relationship and the way the 2 phrases affect one another.

For readers who surprise about altruism, you’ll discover it attention-grabbing that moderately than hoarding, you may enhance your happiness by means of volunteering and donating. On this submit, the writer, Dr. Jeremy Sutton, does a wonderful job of approaching altruism from varied fields and gives glorious assets for additional studying and real-life software.

Our final advice is for readers who wish to know extra about measuring subjective wellbeing and happiness. The submit lists varied assessments and apps that may measure happiness and the general historical past of how happiness was measured and outlined. It is a good place to begin for researchers or clinicians who wish to discover happiness economics professionally.

17 Which means & Valued Residing Workout routines

Lastly if you happen to’re in search of extra science-based methods to assist others uncover that means, take a look at this assortment of 17 validated that means instruments for practitioners. Use them to assist others select instructions for his or her lives in alignment with what is actually vital to them and might make them comfortable.

A Take-House Message

As you’ve seen in our article, the proof overwhelmingly clarifies that cash doesn’t assure extra happiness … effectively, long-term happiness.

Our happiness is relative since we evaluate ourselves to different individuals, and over time, as we change into accustomed to our wealth, we lose all of the happiness beneficial properties we made.

Cash can ease monetary and social difficulties; consequently, it may possibly drastically enhance individuals’s residing circumstances, life expectancy, and training.

Enhancements in these outcomes have a knock-on impact on the general expertise of 1’s life and the alternatives for one’s household and youngsters. However, higher alternatives don’t assure happiness.

Our intention with this submit was as an instance some complexities surrounding the connection between cash and happiness.

Realizing that cash doesn’t assure happiness, we suggest inexpensive strategies to enhance one’s happiness:

  • Spend time with associates.
  • Domesticate hobbies and pursuits.
  • Keep lively and eat wholesome.
  • Attempt to dwell a significant life.
  • Give some love (go smooch your companion or tickle your canine’s stomach).

Diamonds may be a woman’s finest good friend, however cash is a good climate one, at finest.

We hope you loved studying this text. Don’t overlook to obtain our three Which means and Valued Residing Workout routines free of charge.