In 1972, the King of Bhutan made the still novel decision to make “gross national happiness” rather than GDP the main objective of the country’s development. This isn’t just conjecture. It’s a fact. In recent years, a number of nations—from remote Bhutan to far less remote Britain, France, China, and Brazil—have begun incorporating measures of happiness into their benchmarks of national progress. What accelerated the change?

The study of happiness has moved from the fringes of the “dismal science” and the esoteric realm of the philosopher to the center of vociferous debates among economists. The debates cover the relationship between happiness and income and the extent to which happiness metrics can be used as proxies for utility—the streamlined concept of welfare that underlies most economic models.

In 2008, the Sarkozy Commission, —issued a worldwide call for the development of broader measures of national well-being. While national well-being indicators had been a subject of discussion in the academic community for years, the commission placed them at the center of a much more public debate. But the point being, do we care about happiness per se or about the pursuit of happiness? A skeptical view is that this is simply a temporary trend, related to the recession-related realignment of priorities, in which the pursuit of an ever-larger house has been replaced by discussions about the value of things like leisure time and socializing. Yet there are already a number of efforts underway that could result in measures of happiness becoming a part of our economic measures of progress and the subject of our policy debates.

Yet introducing broader measures of well-being into the policy arena also raises a host of unanswered questions. Among them is a conundrum raised repeatedly: the paradox of happy peasants and frustrated achievers. While poor people are less happy than wealthy people on average in countries around the world, very poor people often report that they are very happy (Yes, the research can be banked upon!). In fact, they often report higher levels of happiness than their slightly wealthier counterparts. This conjecture is explained in part by people’s ability to adapt to adversity and related differences in norms and expectations. While better accounting for differences in norms, expectations, and capacity to adapt can enhance our understanding of human well- being, they also complicate comparisons based on well-being data. I must stress how important it is to clarify the differences in terms like “happiness,” “wellbeing,” “subjective well-being,” and “life satisfaction,” among others.

The economics of happiness approach provides us with new tools and data with which to develop measures of welfare that include income metrics but also extend well beyond those metrics. This approach does not purport, in any way, to replace income-based measures of welfare but instead to complement them with broader measures of well-being. The new metrics allow us to place relative weights on the cost of things like a lost job, a divorce,various health conditions, commuting time, and even uncertainty. On the other hand, they also allow us to evaluate the benefits of participating in democracy, of being part of a civic organization, and of exercising, among other things. To put it across simply, traditional economic analysis is based on the assumption that information in survey data cannot be believed. Because there are no consequences to what people say, the only credible data come from revealed consumption choices, made within a fixed budget constraint and entailing genuine trade-offs (it is best to judge one’s happiness, for instance, from measures based on how s(he) behaves). A well-known example to quote this phenomenon would be the one cited by Daniel Kahneman—“in which individuals would not pay more than $2 for a coffee mug, but once they owned it, refused to sell it for less than $4.” It’s all relative, I reiterate it. Relative.

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