December 4, 2023

What Is Happiness Economics?

Happiness economics is a subject of economics that acknowledges happiness and wellbeing as vital consequence measures, alongside measures usually used, reminiscent of employment, schooling, 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 higher schooling 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 score of happiness as a invaluable and fascinating consequence that’s considerably correlated with different vital outcomes, reminiscent of well being (Steptoe, 2019) and productiveness (DiMaria et al., 2020).

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

Together with happiness in economics has opened up a wholly 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 generally is a predictor variable, influencing our choices and behaviors.
  2. Happiness is likely to be the specified consequence, 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. Despite the fact that “being completely satisfied” is a desired consequence, 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 achieve however place significance on different, extra subjective outcomes.

For example: If confronted with two jobs — one which pays properly however will deliver no pleasure and one other that pays much less however will deliver a lot pleasure — some individuals would favor to maximise their happiness over monetary achieve.

If this choice had been evaluated utilizing a utility framework the place the one valued outcomes had 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 vital attribute and generally a fascinating consequence 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 take a look at the affect of employment, funds, and different financial metrics on the subjective score and expertise of happiness at particular person and nation ranges.

Idea of the Economics of Happiness

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

Happiness is such a significant consequence 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 put up, we take into account the function of cash. The connection between happiness, or subjective wellbeing, and cash is assumed to be constructive: More cash means higher happiness.

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

Particularly, low ranges of revenue 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 revenue, however at a sure threshold, we place significance on relative ranges of revenue. Realizing how we rank and examine to different individuals, when it comes to 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 Nineteen Seventies. Brickman and Campbell (1971, as cited in Brickman et al., 1978) first argued that the standard outcomes of a profitable life, reminiscent of wealth or revenue, had no affect on particular person wellbeing.

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

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

There may be 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 develop into wealthier, residents report greater happiness, however this relationship is strongest when the place to begin is poverty. Above a sure revenue threshold, happiness not will increase (Diener et al., 1993).

Apparently, individuals are inclined to agree on the sum of money wanted to make them completely satisfied; however past a sure worth, there may be little enhance in happiness (Haesevoets et al., 2022).

Measurement challenges

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

It isn’t the norm in economics to measure happiness by immediately asking a participant how completely satisfied they’re; as a substitute, happiness is inferred by way of:

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

Moreover, happiness can discuss with an acute psychological state, reminiscent of feeling completely satisfied after a pleasant meal, or an enduring state just like contentment (Nettle, 2005).

Researchers may use totally different definitions of happiness and methods to measure it, thus resulting in contradictory outcomes. For instance, happiness is likely to 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 aren’t happier general than poorer nations and that rising the wealth of poorer nations doesn’t assure that their happiness will enhance too. What may then be performed to extend happiness?

Can Cash Purchase Happiness? 5 Analysis Findings

What’s the relationship between revenue/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 restrictions to the constructive impact of revenue.

Cash buys entry; jobs increase happiness

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

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

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

Most individuals achieve wealth by way of employment; nonetheless, it isn’t 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) reviews that unemployment elevated through the COVID-19 pandemic, and this was accompanied by a marked decline in happiness and optimism.

The pandemic additionally modified how we evaluated sure facets of our lives; for instance, the connection between revenue and happiness declined. In spite of everything, what’s using cash when you 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’d discover that richer international locations are inclined 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 people who are usually 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 definitely produce other components related to them, e.g., greater 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. Despite the fact that the wealth of assorted 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–revenue 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 examine to different individuals, and this relative comparability doesn’t change as country-wide wealth will increase.
  3. Happiness is just not restricted to solely wealth and monetary standing, however is affected by different societal and political components, reminiscent of crime, schooling, and belief within the authorities.
  4. Lengthy-term satisfaction and contentment differ from short-term, acute happiness.

Kahneman et al. (2006) present another clarification centered on the strategy usually 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 means 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 elevate 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

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

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

Contemplate lottery winners. These individuals win sizable sums of cash — usually extra in depth than a wage enhance — giant sufficient to affect their lives considerably. Regardless of this, analysis has constantly proven that though lottery winners report greater fast, short-term happiness, they don’t expertise greater long-term happiness (Sherman et al., 2020).

Listed below are some causes for this:

  • Earlier on a regular basis actions and experiences develop into much less fulfilling when in comparison with a singular, uncommon expertise like successful 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 usually 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 determine to give up their job after successful, however don’t fill this newly accessible time with some sort of significant passion or curiosity, are additionally extra more likely to develop 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 energetic 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 totally 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, reminiscent of feeling happy together with your job. The third tier is extra advanced and refers to life satisfaction.

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

6 Fascinating Books and Podcasts on the Subject

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

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

You probably have a happiness e-book you’d advocate, 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 e-book if and the way cash can have an effect on happiness.

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

The e-book is aimed toward readers from various tutorial {and professional} backgrounds, so no expertise is required to get pleasure from it.

Discover the e-book on Amazon.

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

Happiness by Design

This e-book has a extra sensible spin. The creator explains how we are able to use current analysis and theories to make small modifications to extend our happiness.

Paul Dolan’s main thesis is that sensible issues can have a much bigger impact than summary strategies, and we must always change our conduct somewhat than our considering.

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

Discover the e-book on Amazon.

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

The Psychology of Money

This e-book is just not essentially about happiness economics, however it’s shut sufficient to the general theme that it’s price mentioning.

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

This e-book is a worthwhile addition to any bookcase in case you are within the relationship between funds and psychology typically.

Discover the e-book on Amazon.

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


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

On this e-book, 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 e-book is ideal for a weekend away or to learn on a airplane.

Discover the e-book on Amazon.

5 & 6. Favor to hear somewhat than learn?

One in every of our favourite podcasts is Intelligence2, the place main consultants in a specific subject collect to debate a specific 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, easy methods to measure it — however prolong into different sensible matters reminiscent of 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 all in favour of this episode, or any of the opposite episodes within the Happiness Lab podcast sequence, 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 improvement.

On this part, you’ll discover just a few that ought to complement any work on happiness and economics. Because the undercurrent of the subject is whether or not happiness might be improved by way of wealth, just a few assets take a look at happiness general.

Valued Residing Masterclass

Though data is energy, understanding that cash doesn’t assure happiness doesn’t imply that shoppers will all of the sudden really feel fulfilled and happy with their lives.

For that reason, we advocate the Valued Residing Masterclass, for professionals to assist their shoppers discover that means of their lives. Quite than maintaining with the Joneses or chasing a high-paying job, professionals will help their shoppers join with their internal that means (i.e., their why) as a option to discover that means and achieve happiness.

Three free workouts

If you wish to attempt it out earlier than committing, take a look at the That means & Valued Residing train pack, which incorporates three workouts without spending a dime.

Advisable studying

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

For readers who surprise about altruism, you’d discover it attention-grabbing that somewhat than hoarding, you may enhance your happiness by way of volunteering and donating. On this put up, the creator, Dr. Jeremy Sutton, does a wonderful job of approaching altruism from varied fields and offers wonderful assets for additional studying and real-life utility.

Our final advice is for readers who need to know extra about measuring subjective wellbeing and happiness. The put up lists varied checks 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 need to discover happiness economics professionally.

17 That means & Valued Residing Workouts

Lastly when you’re in search of extra science-based methods to assist others uncover that means, try 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 completely satisfied.

A Take-House Message

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

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

Cash can ease monetary and social difficulties; consequently, it could actually drastically enhance individuals’s dwelling situations, life expectancy, and schooling.

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. Nonetheless, higher alternatives don’t assure happiness.

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

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

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

Diamonds is likely to 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 neglect to obtain our three That means and Valued Residing Workouts without spending a dime.