Daughters and Leftwing Voting by HC12091116941

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									  Modern Society & the
 Economics of Happiness
             Andrew Oswald

I would like to acknowledge research support from the ESRC
Centre for Advantage in the Global Economy (CAGE) at the
University of Warwick.
Is western society going
in a sensible direction?
Growing evidence
suggests that it is not.
The problem is this:
    The problem is this:
People care about their relative
income
..but about the absolute level of
‘green’ environmental factors.
• Modern society is stuck.
• Individually, we chase higher
  income and ‘rank’, but for
  society as a whole this cannot
  be achieved.
The data suggest it would be
rational instead to concentrate
on environmental factors
The data suggest it would be
rational instead to concentrate
on environmental factors -- not
on economic prosperity.
Why should you believe any of
these claims?
 Today I will describe results
• From fMRI scans




• From statistical work on well-being
But let’s start with everyday
empirical evidence.
Consider your wrist.
5 euros
500000 euros
“A watch defines a man's look
  and tone.” Rolex advert.
“A watch defines a man's look
  and tone.” Rolex advert.
Subconsciously, humans
are frightened of falling
behind.
    This links to new empirical work:

Armin Falk and colleagues on relative-income
  images in the brain (Science, Journal of
  Public Economics)
Peter Kuhn and colleagues on car purchasing
  by neighbours of lottery winners (AER
  forthcoming)
Ori Heffetz on visible goods (REStats
  forthcoming).
David Card, Alexandre Mas, Enrico Moretti,
  Emmanuel Saez on peers and satisfaction.
Two papers I would greatly
recommend.
• Title: Social comparison affects reward-
  related brain activity in the human ventral
  striatum
  Author(s): Fliessbach K, Weber B, Trautner
  P, et al.
  Source: SCIENCE Volume: 318 Issue: 5854
  Pages: 1305-1308 Published: NOV 23 2007
• Title: Relative versus absolute income, joy of
  winning, and gender: Brain imaging evidence
  Author(s): Dohmen T, Falk A, Fliessbach K,
  et al.
  Source: JOURNAL OF PUBLIC ECONOMICS
  Volume: 95 Issue: 3-4 Special Issue: Sp. Iss.
  SI Pages: 279-285 Published: APR 2011
We are now able to look
inside the brain.
Armin Falk et al
       Armin Falk et al

While being scanned in adjacent
MRI scanners, pairs of subjects
had to perform a task with
monetary rewards for correct
answers.
Variation in the comparison
subject's payment affected blood
oxygenation level-dependent
(BOLD) responses in the ventral
striatum.
Variation in the comparison
subject's payment affected blood
oxygenation level-dependent
(BOLD) responses in the ventral
striatum. This brain region is
engaged in the registration of
primary rewards.
Falk et al in Science and JPubEcon




                                                                                          0/0             30/0          0/30     30/60     30/30    60/30
                                                                                  1.2
                                                                                                   60/0          0/60       60/120    60/60    120/60




                                                            Parameter estimates
                                                                                  0.8


                                                                                  0.4


                                                                                  0.0


                                                                                  -0.4


                                                                                  -0.8


                                                                                  -1.2        C1   C2     C3     C4         C5   C6    C7   C8    C9 C10 C11

                                                                                  0.2
                                                                                  0.2

                    ROI-defining conditions
                                                                                  0.1
                                                                                  0.1
                                 A correct, B not




                                                            % Signal change
                                 A not correct                                     0
                                                                                  0.0

                    Conditions of interest (both correct)
                                                                                   -0.1
                                                                                  -0.1
                    A’s income : B’s income
                                 1:2                                               -0.2
                                                                                  -0.2

                                 1:1
                                                                                          0               4             8             12         16
                                                                                                                                                 16     20
                                 2:1                                                                                     Time (sec)
                                                                                                                        Time (sec)
Falk et al in Science and JPubEcon

• “The mere fact of outperforming
  the other subject positively
  affected reward-related brain
  areas.”                                                                          1.2
                                                                                           0/0
                                                                                                    60/0
                                                                                                           30/0
                                                                                                                  0/60
                                                                                                                         0/30     30/60
                                                                                                                             60/120    60/60
                                                                                                                                            30/30    60/30
                                                                                                                                                120/60




                                                             Parameter estimates
                                                                                   0.8


                                                                                   0.4


                                                                                   0.0


                                                                                   -0.4


                                                                                   -0.8


                                                                                   -1.2        C1   C2     C3     C4         C5   C6    C7   C8    C9 C10 C11

                                                                                   0.2
                                                                                   0.2

                     ROI-defining conditions
                                                                                   0.1
                                                                                   0.1
                                  A correct, B not




                                                             % Signal change
                                  A not correct                                     0
                                                                                   0.0

                     Conditions of interest (both correct)
                                                                                    -0.1
                                                                                   -0.1
                     A’s income : B’s income
                                  1:2                                               -0.2
                                                                                   -0.2

                                  1:1
                                                                                           0               4             8             12         16
                                                                                                                                                  16     20
                                  2:1                                                                                     Time (sec)
                                                                                                                         Time (sec)
The next slide -- very briefly --
is for specialists.
              Blood-oxygenation equations
Table: Activation and Income
Dependent variable: ventral striatum activation
                                          (1)                                      (2)               (3)
                                    all conditions                          conditions 2-11   conditions 6-11

Ow n Income (in 100 Euro)                                       0.916***       0.868***          0.327***
                                                                 [0.109]        [0.102]           [0.091]
Other's income (in 100 Euro)                                    -0.666***      -0.714***         -0.353***
                                                                 [0.087]        [0.086]           [0.090]
Constant                                                          -0.119        -0.061             0.068
                                                                 [0.144]        [0.145]           [0.167]
Observations                                                       704            640               384
R-squared                                                         0.059          0.063             0.011
OLS estimates; clustering on individuals, robust standard errors in brackets; ***
p<0.01, ** p<0.05, * p<0.1
   •   (similar with fixed effects, main variation across Ss)
So, inside your brain
   So, inside your brain
You simply want to be high up
the monkey pack
Here is a different kind of
evidence.
It has been found that
     It has been found that


Relative-income variables show
up consistently in well-being
equations.
         It has been found that


Relative-income variables show
up consistently in well-being
equations.
E. Luttmer, Quarterly Journal of Economics 2005
A. E.Clark et al, JPubEcon 1996, JELit 2008
GDA Brown et al, Industrial Relations 2008 and
Psychological Science 2010
D. Card et al, NBER paper, 2011.
 A person’s happiness and
mental health = f(their relative
income).
By contrast:
The importance of ‘green’ factors
• Luechinger, S. “Valuing Air Quality Using the Life
  Satisfaction Approach” Economic Journal, 2009.
• Welsch, H. "Environment and Happiness: Valuation
  of Air Pollution Using Life Satisfaction Data."
  Ecological Economics, 2006.
• Di Tella, R., and R. MacCulloch. 2008. "Gross
  National Happiness as an Answer to the Easterlin
  Paradox?" Journal of Development Economics,
  2008.
• Levinson, A. “Valuing Public Goods with Happiness
  Data: The Case of Air Quality” 2011 NBER paper.
These studies link happiness
data to spatial environmental
data.
Summarizing, the studies find
huge effects from the
environment on to human
happiness.
Summarizing, the studies find
huge effects from the
environment on to human
happiness.

A one SD reduction in SO2 is worth in
happiness terms about the same to a person
as 20% extra income.
            Finally
Professor Easterlin’s paradox.
                     3                                                                                    40000




                                                                                                                  Real Income Per Capita (2000 US$)
                    2.5
                                                                                                          30000
Average Happiness




                     2

                    1.5                                                                                   20000
                             FIGURE 1: Happiness and Real Income Per Capita in the US, 1973-2004
                     1
                                          Happiness              Real Income Per Capita                   10000
                    0.5

                     0                                                                                    0
                          1973     1977      1981       1985      1989       1993      1998        2003
                                                               Year
Life-satisfaction country averages
        Italy
        Ireland                        3.8
        Germany
        Netherlands                    3.6

                                       3.4

                                       3.2

                                       3

                                       2.8

                                       2.6

                                       2.4
 1974        1982     1990   1998   2006
There is also evidence, perhaps not
known to many economists, of
worsening mental health through
time in some countries.
Worsening GHQ levels through time

• Verhaak, P.F.M., Hoeymans, N. and Westert,
  G.P. (2005). “Mental health in the Dutch
  population and in general practice: 1987-2001”,
  British Journal of General Practice.
• Wauterickx, N. and P. Bracke (2005), “Unipolar
  depression in the Belgian population - Trends
  and sex differences in an eight-wave sample”,
  Social Psychiatry and Psychiatric Epidemiology.
• Sacker, A. and Wiggins, R.D. (2002). “Age-
  period-cohort effects on inequalities in
  psychological distress”. Psychological Medicine.
What of well-being among
the young?
Helen Sweeting et al

“GHQ increases among Scottish 15
year olds 1987–2006” Social Psychiatry
& Psychiatric Epidemiology (2008).
Her team assesses whether life
is getting more stressful for
young people.
It is.
             Mental strain in young Scots

            50


            40
% 'cases'




            30
                                          males
                                          females
            20


            10


            0
                 1987       1999   2006
Summing up:
Is this a rational future?
In my opinion, it is time as a
society for us to face up to
uncomfortable evidence.
In my opinion, it is time as a
society for us to face up to
uncomfortable evidence.
Is our society going in a
sensible direction?
Is our society going in a
sensible direction? The
evidence suggests: no.
Extra slides
• Historically, from 1980 until 2011,
  Switzerland and the UK and Spain all
  had average quarterly GDP Growth of
  about 0.5 percent.

• Yet they have had very different
  unemployment rates.
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.
“Emphasis on growth is
 misguided”

“Beyond GDP”

“Measuring   what matters”
    Happiness is the new GDP


Smile, and the economy smiles with you. Factory workers in Macedonia.
There has recently been a
critique of Easterlin’s idea
  There has recently been a
  critique of Easterlin’s idea

Betsey Stevenson and Justin
Wolfers have argued that
economic growth does buy
happiness.

Brookings Papers, Spring 2008
Their work is extremely valuable
Their work is extremely valuable
  But ultimately I think they probably
  have the wrong answer.
•    Much of their paper is concerned
  with cross-section patterns.
•    In the long time-differences, which is
  the appropriate test, little is statistically
  significant in 1973-2007 European data.
Moreover, Stevenson and Wolfers
agree that Americans have if
anything become less happy over
the last 40 years.
              Overall
I would say that currently the
balance of the evidence favours
Easterlin rather than Stevenson-
Wolfers.

[though it is bad science for us ever to
close our minds, so we must watch for
new evidence as it accumulates]
• In the early 70s, 33% of Americans
  described their lives as very
  happy, 52% as pretty happy, and
  15% as not too happy.
• In the early 70s, 33% of Americans
  described their lives as very
  happy, 52% as pretty happy, and
  15% as not too happy.
• By the late 2000s, the numbers
  were 31%, 55%, 14%.
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.
“Emphasis on growth is
 misguided”

“Beyond GDP”

“Measuring   what matters”
    Happiness is the new GDP


Smile, and the economy smiles with you. Factory workers in Macedonia.
              Stiglitz et al:
Official statistics should blend
objective and subjective well-
being data
Recommendation 10: Measures of both
objective and subjective well-being provide key
information about people’s quality of life.
Statistical offices should incorporate questions to
capture people’s life evaluations, hedonic
experiences and priorities in their own survey.

								
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