An Economist's Thoughts on Happiness

Yale’s business school just published an interesting interview with Betsey Stevenson-my favorite economist. And yes, the usual disclosure applies: this is partly because she’s an interesting coauthor and colleague, but also because she’s my partner. She makes an interesting point about the interplay between happiness research and behavioral economics:

For a very long time, we believed the best thing to do was just look at what people do and infer their preferences from their behavior. But we’ve started to learn that there are some domains where that is hard to do… I think one of the richest potential areas for happiness data is in the area of behavioral economics – in situations where the way people behave may not actually reflect their true, underlying preferences.

But she also warns economists not to get too carried away:

There is a real question of whether happiness is the same thing as utility. Gary Becker has argued quite forcefully that they are not the same thing, that they should not be used interchangeably, that instead we should think of happiness as being one component of utility. I agree with his point that there is probably more to life than even life satisfaction. I know that sounds almost oxymoronic, but perhaps we’re missing a sense of greater purpose or fulfillment.

The interview is interesting throughout, providing a provocative account of the state of knowledge on economics and happiness. Read the full interview, here.


I for one, would have to disagree with the whole idea of happiness not being interchangeable with utility. Happiness is merely a more psychological, and maybe "human" factor to utility's economic and rational standpoint. Both mean the same thing in a sense. If you are satisfied with, lets say a house, and someone decides to buy that house from you for for double the amount you payed for it. Some would gladly take the money because they get more utility/happiness out of it. This does not apply to everyone as different people conform to different things. You may have some people who are perfectly happy, or have maximized their utility with some of the simpler things in life, and some who spend their money on lavish things to satisfy that abyss for happiness they might want to close up. Though you may influence what they think will make them happy by all of the sociocultural changes happening around us, you are only molding a fraction of what people truly desire.

However, when it comes to income, there will always be outstanding data in a graph where a person with high income will have a lower happiness (Utility out of life) than someone who is very poor. Some of the poorer countries in the world have recorded higher levels of "Utility/Happiness" than some of the richest countries in the world (The same goes for suicide rates).



Dissatisfaction is the main motivation for seeking satisfaction.

Bang On!!!


happiness is transient; satisfaction lasts.


Actually, utility is a necessary part of economic analysis. Indifference curves and choice theory can all be based in revealed preference behavior. Instead, unfortunately, an increasingly large research effort by academic economists has been crossing into the realm of psychology -- specifically to explain and predict irrational and inconsistent individual choice behavior, especially toward risk. Economic theory based on applying calculus to utility maximization relies on measureable, cardinal, deferentiable properties of utility.

Far better to let the psychologists own this area of research and let economists restrict their analysis to legit principles of people and businesses operating in their own self interest. Otherwise, the economic profession risks entering another lost generation like the recent two decades wasted in an attempt to redesign all economic fields as subclasses of game theory. That effort was largely unsuccessful.


Mom's free lunch

Well- today was a great day for me. My daughter had one of those "one of a kind adventures in life" that makes a person real happy. she learned that sometimes when you want something, all you have to do is ask. She did not know how the day would turn out. Maybe she would and mayshe would not like what she was doing. Well- She asked and was an intern for the day. Her words afterward, "this is the most exciting day in my life." Now that is happy. Are so many people so unhappy that the very notion of real happy eludes them.

Where is the sense of the adventure of life. Has the Protestant Ethic "grilled it" out of us.

My suggestion- take a walk and look at the snow- it is gorgeous- absolutely breathtaking- And the sight is free.


#22: "Dissatisfaction is the main motivation for seeking satisfaction. "

"Bang On!!!"

As we discussed this matter over lunch, I came to realize that "Bang On!!!" had different meanings to different people. To the Anglophiles, it means "I agree emphatically." To the Americans, it means "Keep having sex."

Given the context, either interpretation is plausible. Or both.

Ed Gaines

Pardon, but aren't an economist's thoughts on happiness about as apropos as an investment banker's thoughts on ethics?

Linda Ung

Is it better to just buy the superfreakonomics book rather than buy both of them?


what about suicide rates?
It is a more reliable indicator compared to happiness. Happinness measures are based on questionnaires and it is something subjective. I agree that we are only taking into account those who are in the bottom of the distribution of well being in a society but this events are also important.
Suicide rates can be higher in countries with higher income just because they have better recording systems for deaths


I think happiness is more about motivation and one's behavior. Everyone makes decisions that either satisfy them or they don't. The ones that make people the most happy tend to be the ones with a goal at the end; motivation. When people are motivated, they act differently than when they are not. Happiness comes from positive motivation, therefore allowing positive behavior to occur.