The Economics of Happiness

The economics of happiness assesses welfare by combining economists’ and psychologists’ techniques, and relies on more expansive notions of utility than does conventional economics. The research highlights factors other than income that affect well-being. It is well suited to informing questions in areas where revealed preferences provide limited information – for example, the welfare effects of inequality and of inflation and unemployment. Despite the potential contributions for policy, a note of caution is necessary because of the potential biases in survey data and the difficulties in controlling for unobservable personality traits. Economics of happiness The economics of happiness is an approach to assessing welfare which combines the techniques typically used by economists with those more commonly used by psychologists. While psychologists have long used surveys of reported well-being to study happiness, economists only recently ventured into this arena. Early economists and philosophers, ranging from Aristotle to Bentham, Mill, and Smith, incorporated the pursuit of happiness in their work. Yet, as economics grew more rigorous and quantitative, more parsimonious definitions of welfare took hold. Utility was taken to depend only on income as mediated by individual choices or preferences within a rational individual’s monetary budget constraint.