Harcourt

HAPPINESS FRONTIERSand how to make others happy

Paul Frijters – UQ+ ANU

Life Satisfaction in Australia

6

6.5

7

7.5

8

8.5

9

9.5

10

Lif

e S

atis

faci

tio

n

AGE

Raw Average Life Satisfaction

Australia (HILDA) Australia (Smart Train)

Source: Tony Beatton, 2011 PhD thesis

Very young, very happy.

Midlife: stresses.

Mid-old (60-70) bliss again.

Very old (80-90) health deteriorates: happiness drops again.

-1-.

75-.

5-.

250

.25

.5.7

51

Est

ima

ted

imp

act

on

life

sa

tisfa

ctio

n

-16 -12 -8 -4 0 4 8 12 16Quarters since major worsening in finances

Without Fixed Effects With Fixed Effects

Interpretation

People are unhappier around the period of the negative shock (financial worsening). You see anticipation effects and adaptation: 2 years after the shock, no more effect.

-1-.

75-.

5-.

250

.25

.5.7

51

Est

ima

ted

imp

act

on

life

sa

tisfa

ctio

n

-16 -12 -8 -4 0 4 8 12 16Quarters since separated from spouse

Without Fixed Effects With Fixed Effects

-1-.

75-.

5-.

250

.25

.5.7

51

Est

ima

ted

imp

act

on

life

sa

tisfa

ctio

n

-16 -12 -8 -4 0 4 8 12 16Quarters since got married

Without Fixed Effects With Fixed Effects

Content: four big issues in happiness

1. Is happiness determined by genes and early childhood?

2. Happiness and relative income.

3. Fluctuations.

4. Economic development and happiness.

Status quo: life Satisfaction basics

Most used question: ‘How satisfied are you at present with your life, all things considered?’ 0 (completely dissatisfied) to 10 (completely satisfied).

Other formats have been used (0-5, or 0-20 scales, or verbal answers happy/unhappy) but the above is the most used one.

Whether one analyses these questions in an ordinal way or a cardinal way makes virtually no difference for results.

Satisfaction levels are much more strongly related to certain observables (income, marriage, work, education) than satisfaction changes.

Gruen

lecture

Validation?

activity in the brain’s pleasure centers (Dr. Heath’s prisoner experiments in 1950s). Happiness (and emotions generally) are suppressed by fear;

health, smiles, positive emotional arousal, and future intentions: the unhappy quit and are unhealthy.

People communicate happiness as information to others people are thus reasonably good at predicting others’ happiness: there appears a universal body language of happiness which we are evolutionary geared to picking up; Happiness and reading it are thus probably hard-wired.

Self-reported happiness relates strongly to…….

Pleasure centre: septal area of the hypothalamus

Amygdala:emotions

Self-reported happiness is known to relate strongly to activity in the brain’s pleasure centers.

Self-reported happiness strongly relates to health, smiles, and future intentions: the unhappy quit and are unhealthy.

People are quite good at predicting other people’s happiness: there is a universal body language of happiness which we are evolutionary geared to picking up. Happiness is thus hard-wired.

....

Self-reported happiness is mainly interpreted as a reasonable, but noisy, measure of experienced utility, i.e. what individuals on reflection would want to maximise.

Most of the literature is empirical and oriented around the question of what makes people happy. Theories of happiness formation are emerging though.

....

Is happiness fixed at early age

Relevant for the following areas: Birth control. Early-life intervention and school. Migration policy.

Is happiness predetermined?

For Britain0

.1.2

.3P

rop

ort

ion o

f sub

sam

ple

0 2 4 6 8 10

High SES at birth

Low SES at birth

0.1

.2.3

Pro

port

ion

of s

ubsa

mpl

e

0 2 4 6 8 10

High test score at age 10

Low test score at age 10

Policy implications

Good news I: changing the genes of the population is not going to help aggregate happiness much.

Good news II: it is not all lost in childhood. Even the emotionally unbalanced troublesome kids often turn out to be quite happy adults.

Bad news: income and good jobs are more predetermined by childhood (up to 30% variation explained).

Frontier: happiness resilienceFIGURE 3. DYNAMIC PATTERNS OF RESPONSES TO SHOCKS BY CLASS

The resilient group I are those with internal control, non-neurotic. These are the well-loved kids, more often male than female.

Income relativity

Relevant for the following policies: Taxation. Savings interventions. Migration and assimilation. International cooperation on tax. Business cycle intervention via the

understanding of rigidities during recessions.

Happiness and income

Are rich countries happier than poor countries?

Are rich people happier than poor people?

Do countries become happier when they get even richer?

What’s probably going on?

1995/2000 World Value survey findings

Tanz

Nig

Uga

MOL

BAN

PAK

ZIM

Vietnam

India

MOR

ARM

ALB

SALV Ven

Ukr

Alg

MacBela

Bosn

Colombia

Dom

Iran

Bulgaria

Bra

Rom

Uru

Mexico

Rus

S.AFR

Chile

Lat

CROA

Arg

Lit

ESTSloHun

MALT

CzePORTSlovenia

GRE

New Zealand

Isr Spa SIN

GerItaly

FRA

SWEFin

Australia UKBelgCan

DenNetherlands Austria ICESwi

NorUS

Irl

0

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9

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

IND

EX

GDP per capita, PPP (constant 2000 international $)

Life Satisfaction World Values Survey

the western countries

Growing countries:East-Germany?

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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Lif

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tisf

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on

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Rea

l Inc

ome

(DM

)Life Satisfaction RealIncome

and Russia?

FIGURE 2: Life Satisfaction and Real Monthly Income in Russia, 1994-2001

0

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1994 1995 1996 1998 2000 2001Year

Lif

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-1)

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Rea

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thy

Inco

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Life Satisfaction

Real Monthly Income

So rich countries are happier countries, but what about within countries?

Income and happiness within Australia0

24

68

10

Sa

tisfa

cto

in

6 8 10 12 14Log Income

95% CI life satisfaction lpoly smooth

kernel = epanechnikov, degree = 0, bandwidth = .39, pwidth = .59

Happiness and income

And in China in 2003?

So is then true that countries that get richer over time get happier?

Basic pictures: Happiness in the US

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1973 1977 1978 1982 1986 1990 1994 2000 2004

Year

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Hap

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Rea

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Per

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Happiness Real Income Per Capita

Other rich countries?

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1973 1977 1980 1983 1986 1988 1990 1993 1996 2000 2004

Year

Ave

rage

Lif

e S

atis

fact

ion

UK France Germany Italy Netherlands

Coef st. dev. T-val

married 0.4906 0.1035 4.74

nchild -0.0083 0.0267 -0.312

healthgood 0.8546 0.0724 11.804

healthfair 0.4431 0.0613 7.223

health missing 0.4564 0.1236 3.691

working -0.0651 0.0669 -0.973

just married this year 0.2797 0.2524 1.108

just married 4-6 months ago -0.3192 0.3377 -0.945

just marriedl 6-12 months ago -0.1497 0.2747 -0.545

separated last year -0.2149 0.1514 -1.42

just separated 4-6 months ago -0.0393 0.2047 -0.192

just separated 6-12 months ago 0.0363 0.1738 0.209

pregnant last year 0.2548 0.0919 2.774

had a baby last year 0.183 0.0936 1.955

serious illness last year -0.2165 0.0588 -3.68

Typical results: the 3 waves of the HILDA on life satisfaction (conditional fixed effect ordered logit)

jrelillness -0.0502 0.0435 -1.154

jdeathsp -0.0509 0.1753 -0.291

jdeathother -0.065 0.0513 -1.267

jphyscrime -0.1632 0.1342 -1.216

jpropcrime -0.1684 0.0665 -2.531

jjail 0.0105 0.159 0.066

jretired 0.0079 0.1074 0.074

jfired -0.0197 0.0962 -0.205

jchangejob 0.1079 0.0535 2.019

jpromoted 0.0228 0.0712 0.32

jmovedhome 0.16 0.0454 3.523

log income 0.0836 0.0384 2.18

finances got better last year 0.4306 0.1447 2.976

fin better 4-6 months ago -0.0511 0.2149 -0.238

fin better 6-12 months ago -0.5138 0.193 -2.662

finances got worse last year -0.5058 0.1665 -3.037

fin worse 4-6 months ago 0.2163 0.2298 0.942

fin worse 6-12 months ago 0.0006 0.2115 0.003

Mean log-likelihood -0.97393

Number of cases 7553

Shows a kink, because better finances relates

to 2* more money than worse!

And Chinese data (Knight and Song 2004)

Best evidence we have for relativity!

Hence rich countries indeed are happier than poor ones and rich people are happier than poor people. Countries that get richer dont get happier though, unless they come from the bottom.

The relativity story: basic needs get satisfied, what remains is vanity

* '1 2ln( ) ln( / )t t t t tU y y y Z

0

Hap

pin

ess

Relationship across time in a country

Country t0

Log Income

Country t2

Country t1

Relationship within a country at some time

yt individual Income, y*t aggregate income

Direct questions about the role of relative income

Source: Mujcic and Frijters (2011)

Findings from vignettes

Males, young individuals and those from wealthier families are more status oriented. Strong evidence for the existence of status effects (no one in the data consistently chooses the situation with highest absolute income).

Why the opposition to slowing growth? Have a look at these US Gallup polls

A positive outlook matters immensely, which is itself related to a reality of continued relative standing versus other countries.

Hence a country individually is caught in an international status race.

The recession didnt change relativities so what’s going on?

Example of a current index

Development and happiness

Happiness is empirically found to increase in the relative and absolute income of countries: economic development at the bottom is good for happiness. Win Win.

One question is whether this growth comes at the expense of sustainable happiness of itself and other countries. Not clear, but often argued.

Development often comes with new institutions that reduce the severity and incidence of people constantly having their self-esteem under pressure from being in abuse un-loved situations that they cannot escape. Not universally true though: systematic abuse seems to be connected to a combination of low income and culture. Jury still out.

Recap: policy relevant issues Relativity is all-important. People really are

mainly motivated by status races, as Adam Smith already remarked (‘it is our vanity that urges us on’). Hence higher progressive taxation at the world level is probably a good thing.

Relativity seems international, reducing the role of national policy.

Happiness is not fixed at birth or at 10 so there is hope for all and a potential policy role across the life-cycle. The effect of upbringing is mainly on the susceptibility to shocks, less on the average.

What can you do? 3 tips.

1. Your lie is your gift. The most important variable factor in happiness is probably self-esteem, which relies on a positive self-image.

2. Be clear about power. Battles over power are inevitable, but they should be short and clear.

3. Give and demand what is needed for sustainable relationships. Walk away from relationships where this is not possible.

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