Presentation on theme: "The Economics of Happiness and Health"— Presentation transcript:
1 The Economics of Happiness and Health Andrew OswaldIZA and WarwickI would like to acknowledge that much of this work is jointwith coauthors Chris Boyce, Andrew Clark, Nick Powdthavee,David G. Blanchflower, and Steve Wu.
2 This week I’d like to propose a number of ideas.
3 #1‘Happiness’ data offer us interesting potential as proxy-utility data. u = u(y, z, ..)
5 We now know:There is a lot of regularity in these regression-equation patterns, across countries and well-being measures.Fairly robust to panel estimators and different methods.Progress can be made on causality.
7 If this form of function can be estimated (and K, L, M are life events): Happiness = a + bK + cL + dM +eY where Y is income,
8 If this form of function can be estimated (and K, L, M are life events): Happiness = a + bK + cL + dM +eY where Y is income, then we may be able to use such equations to calculate the implied dollar value of the happiness from life events K, L, M.
9 Monetary equivalences A life satisfaction equation:Life satisfaction = B1*income + B2*Event + errorMarriage - $100,000 (Blanchflower and Oswald, 2004), Neuroticism - $314,000 (Boyce et al., in press), Widowhood – ($175,000-$496,000), Health limiting daily activities ($473,000) (Powdthavee, van den Berg, 2011)
10 #2The next 20 years are likely to see economists work more and more with physiological and hard-science data.
11 #3Biomarker data will (slowly) be used more and more in economics.
12 #4Empirically, there are strong relative effects on utility:
13 #4Empirically, there are strong relative effects on utility: u = u(y, y*) eg. if y* is others’ incomes.
14 #5A crucial role in social-science behaviour is played by the second derivative, v″, of the functionutility = v(relative status)+ ..
15 In humans (I shall argue) Concavity of v(.) leads to imitation and herd behaviourConvexity of v(.) leads to deviance.
16 #6The Stiglitz Commission’s ideas will eventually take hold.
17 Stiglitz Report 2009:“Measures of .. objective and subjective well-being provide key information about people’s quality of life. Statistical offices [worldwide] should incorporate questions to capture people’s life evaluations, hedonic experiences … in their own survey.” P.16. Executive Summary of Commission Report.
24 Useful introductions“Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles” (Andrew Clark, Paul Frijters and Mike Shields), Journal of Economic Literature, 2008.The Happiness Equation (Nick Powdthavee), Icon Books, 2010.
25 This is a good time for general questions if people would like to ask some?
26 Now let’s think about how human beings report their feelings (for example, in a survey).
27 First, they have genuine feelings inside themselves (about how happy they are, say).
28 Second, they make a decision about how to report those feelings.
29 There are then two processes going on inside a person.
55 113 Men and 106 WomenThe respondents were asked to record how tall they felt, using a continuous un-numbered line with the words ‘very short’ written at the left-hand end to ‘very tall’ at the right-hand end.
56 113 Men and 106 WomenThe respondents were asked to record how tall they felt, using a continuous un-numbered line with the words ‘very short’ written at the left-hand end to ‘very tall’ at the right-hand end.Numbers were coded 1…10 afterwards.
57 Then we looked at the correlation between feelings of being tall and actual true height.
59 How well correlated are feelings of height and actual height?
60 Feelings of height and actual height in 113 men
61 Feelings of height and actual height in 106 women
62 These plots are consistent with a linear reporting function.
63 Much more research on the reporting function r( Much more research on the reporting function r(.) will be required in the future.
64 Evidence from Neuroscience Positive feelings correspond to brain activity in the left-side of the pre-frontal cortex, above and in front of the earNegative feelings correspond to brain activity in the same place in the right side of the brain
66 The Brain Responses to Two Pictures (MRI Scan) Source: Richard Davidson, University of Wisconsin
67 The types of statistical sources General Social Survey of the USABritish Household Panel Study (BHPS)German Socioeconomic PanelAustralian HILDA PanelEurobarometer SurveysLabour Force Survey from the UKWorld Values SurveysNCDS 1958 cohortBRFSS
68 From the U.S. General Social Survey (sample size 40,000 Americans approx.) “Taken all together, how would you say things are these days - would you say that you are very happy, pretty happy, or not too happy?”
69 An alternative DRM approach A study by Daniel Kahneman and his colleagues on 1,000 working women in Texas (see Kahneman et al, 2003)These women were asked to divide the previous day into 15 episodes. They were then asked what they were doing in each episode, and who were they doing it with.
71 Happiness while Spending Time with Different PeopleThe average reported feelings across 1,000 people correspond well with activities predicted to be good for us, as well as activities predicted to be bad for us
72 So how has the modern work on the economics of happiness proceeded?
73 Here is a modern US happiness equation (courtesy of David Blanchflower, Dartmouth College and NBER)
74 Could you turn to the NBER Blanchflower-Oswald paper on international happiness?
77 Some cheery news:In Western nations, most people are pretty happy with their lives.
78 Some cheery news:In Western nations, most people are pretty happy with their lives.
79 Some cheery news:In Western nations, most people are pretty happy with their lives.
80 Some cheery news:In Western nations, most people are pretty happy with their lives.
81 The distribution of life-satisfaction levels among British people Source: BHPS, N = 74,481
82 Exogenous shocks and happiness New work looks atGenesLottery wins9-11’s effectsDeaths of childrenSporting resultsMovements in air pollution
83 Other work on happiness as causal John Ifcher and Homa Zarghamee, forthcoming in the AER, on happiness leading to different rate of time discount.Oswald, Proto, Sgroi on happiness leading to higher productivity.These randomly assign happiness.
84 Is modern society going in a sensible direction?
85 This is an empirical question "Does Economic Growth Improve the Human Lot?" Richard Easterlinin Paul A. David and Melvin W. Reder, eds., Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, New York: Academic Press, Inc., 1974.
94 Quadratic Life-Satisfaction in the US Steve Wu on BRFSS 2010 data age agesq Again the U-shape.
95 A life satisfaction U-shape in age also exists in many developing nations In World Values Survey data, there is a U-shape and it reaches its minimum at:
96 A life satisfaction U-shape in age also exists in many developing nations In World Values Survey data, there is a U-shape and it reaches its minimum at: Brazil 37 China 46 El Salvador 48 Mexico 41 Nigeria 42 Tanzania 46
117 A key social-science fact The data show that richer people are happier and healthier.
118 But some general economists have low life-satisfaction when they hear about this research.
119 The tradition of economics has been to ignore what people say about the quality of their own lives.
120 Many are opposed to the idea of measuring ‘happiness’. The tradition of economics has been to ignore what people say about the quality of their own lives.Many are opposed to the idea of measuring ‘happiness’.
133 I would like to give you the flavour of the argument in Oswald-Wu in Science in 2010.
134 Are objective and subjective data on quality-of-life correlated? Also the self-reported measures correlate with certain physiological states (brain activty)But empirical results differ depending on what outcome measure is usede.g see the Borooah paper on the reading listself-assessed happiness questionv. usage of tranquilisers and antidepressantsv. thoughts of self-harm (inc suicide)134134134
135 We can exploit neo-classical economic theory to assess the validity of well-being data.
137 Joint work with Steve Wu New data from the Behavioral Risk Factor Surveillance System (BRFSS)1.3 million randomly sampled Americans2005 to 2008A life-satisfaction equation
138 Then we go to the compensating-differentials literature dating back to Adam Smith, Sherwin Rosen, Jennifer Roback, etc.The most recent is Gabriel et al 2003.
139 Gabriel painstakingly takes data on PrecipitationHumidityHeating Degree DaysCooling Degree DaysWind SpeedSunshineCoastInland WaterFederal LandVisitors to National ParksVisitors to State ParksNumber of hazardous waste sites
140 and Environmental Regulation Leniency Commuting Time Violent Crime RateAir Quality-OzoneAir Quality-Carbon MonoxideStudent-teacher ratioState and local taxes on property, income and sales and otherState and local expenditures on higher education, public welfare, highways, and correctionsCost-of-living
141 Subjective and objective Then there are 2 ways to measure human well-being or ‘utility’ across space.Subjective and objective
142 Gabriel’s work assigns a 1 to the state with the highest imputed quality-of-life, and 50 to the state with the lowest.
143 So we need to uncover a negative association – in order to find a match.
164 The Economics of Happiness and Health Andrew OswaldResearch site:I would like to acknowledge that much of this work is jointwith coauthors Chris Boyce, Andrew Clark, Nick Powdthavee,David G. Blanchflower, and Steve Wu.