A critique of the econometrics of happiness: Are we underestimating the returns to education and income?

A large "happiness", or life satisfaction, literature in economics makes use of Likert-like scales in assessing survey respondents' cognitive evaluations of their lives. These measures are being used to estimate economic benefits in every empirical field of economics. Typically, analysis of these data have shown remarkably low direct returns of education for improving subjective well-being. In addition, arguably, the inferred impact of material wealth and income using this method is also unexpectedly low as compared with other, social factors, and as compared with economists' prior expectations which underlie, in some sense, support for using GDP as a proxy for more general quality of life goals. Discrete response scales used ubiquitously for the reporting of life satisfaction pose cognitive challenges to survey respondents, so differing cognitive abilities result in different uses of the scale, and thus potential bias in statistical inference. This problem has so far gone unnoticed. An overlooked feature of the distribution of responses to life satisfaction questions is that they exhibit certain enhancements at focal values, in particular at 0, 5, and 10 on the eleven-point scale. In this paper, I investigate the reasons for, and implications of, these response patterns. I use a model to account for the focal-value behavior using a latent variable approach to capture the "internal" cognitive evaluation before it is translated to the discrete scale of a survey question. This approach, supported by other more heuristic ones, finds a significant upward correction for the effects of both education and income on life satisfaction

Veblen goods and neighbourhoods: endogenising consumption reference groups

One of the significant developments in the last four decades of economics is the growing empirical evidence that individual consumption preferences, as mea- sured by self-reported life satisfaction, are neither fixed nor self-centred but are instead overwhelmingly dominated by externalities, partly in the form of reference levels set by others and by one’s own experience. Welfare analysis recognising this fact is likely to indicate enormous revisions for macroeconomic policy and social objectives as well as for what is taught in economics at all levels. Yet the task of constructing general equilibrium models based on this microeconomic re- ality is still in its infancy. In this work I take the conventional stance that decision makers understand their own utility function. Therefore, they can choose the mi- lieu in which they immerse themselves with the sophisticated understanding that it will affect their own consumption reference levels and therefore the degree of satisfaction they derive from their private consumption. At the same time, their private consumption will help to set the reference level for others in their chosen group. I treat theoretically the problem of such endogenous formation of consump- tion reference groups in the context of a simultaneous choice of neighbourhoods and home consumption amongst a heterogenous population. For both discrete and continuous distributions of types, I find general equilibrium outcomes in which differentiation of neighbourhoods occurs endogenously and I compare the welfare implications of growth in such economies.reference income; veblen goods; consumption reference groups; club goods

How state and local governments can buy their citizens’ happiness

One major goal for elected officials and policymakers is to improve the happiness of their constituents in cost-effective ways. But how do individuals’ circumstances influence which policies are likely to make them feel more satisfied with their lives? In new research which draws on a large Connecticut-based survey, Christopher Barrington-Leigh and Jan Wollenberg find that improvements in areas of people’s lives such as food security and social engagement can lead to much greater improvements in their happiness compared to increasing their incomes. With that in mind, they recommend that by targeting specific groups and needs, state and local agencies may be much more effective at improving happiness compared to more blanket measures which affect everyone

Empathy and Emulation: Life Satisfaction and the Urban Geography of Comparison Groups

Departures from self-centred, consumption-oriented decision making are increasingly common in economic theory and are well motivated by a wide range of behavioural data from experiments, surveys, and econometric inference. A number of studies have shown large negative externalities in individual subjective well-being due to neighbours' incomes. These reflect the role of nearby households as comparison groups acting in individuals' reference-dependent preferences over income or consumption. At the same time, there are many reasons to expect positive spillovers from having prosperous neighbours. We combine high-resolution geographic data from three Canada-wide social surveys and the 2001 census to disentangle the spatial pattern of reference groups in urban areas and to identify channels of positive and negative spillovers on life satisfaction. We find evidence of significant effects of others' income at different scales and are able to reject a number of alternative explanations for the findings.

Measuring and Understanding Subjective Well-Being

Increasing attention is being paid in academic, policy, and public arenas to subjective measures of well-being. This promising trend represents a shift towards measuring positive outcomes in psychology and greater realism in the study of economic behaviour. After a general review of past and potential uses for subjective well-being data, and a discussion of why some economists have previously been sceptical of SWB data, we present global and Canadian examples from our own research to illustrate what can be learned. Differences in subjective well-being will be shown to be large and sustained across individuals, communities, provinces and nations. Although the patterns of subjective well-being are very different across Canada than across the world, we show that in both cases the differences can be fairly well accounted for by the same set of life circumstances. Our examples of policy-relevant research findings include new accountings of the differences in individual-level SWB assessments around the world and across Canada. These highlight the importance of social factors whose role has otherwise been hard to quantify in income-equivalent terms.

Character values for GL(2,Z/pℓZ)

AbstractWe give the values of the irreducible complex characters of the group GL(2,Z/pℓZ) where ℓ is an integer >1

Veblen goods and neighbourhoods: endogenising consumption reference groups

One of the significant developments in the last four decades of economics is the growing empirical evidence that individual consumption preferences, as mea- sured by self-reported life satisfaction, are neither fixed nor self-centred but are instead overwhelmingly dominated by externalities, partly in the form of reference levels set by others and by one’s own experience. Welfare analysis recognising this fact is likely to indicate enormous revisions for macroeconomic policy and social objectives as well as for what is taught in economics at all levels. Yet the task of constructing general equilibrium models based on this microeconomic re- ality is still in its infancy. In this work I take the conventional stance that decision makers understand their own utility function. Therefore, they can choose the mi- lieu in which they immerse themselves with the sophisticated understanding that it will affect their own consumption reference levels and therefore the degree of satisfaction they derive from their private consumption. At the same time, their private consumption will help to set the reference level for others in their chosen group. I treat theoretically the problem of such endogenous formation of consump- tion reference groups in the context of a simultaneous choice of neighbourhoods and home consumption amongst a heterogenous population. For both discrete and continuous distributions of types, I find general equilibrium outcomes in which differentiation of neighbourhoods occurs endogenously and I compare the welfare implications of growth in such economies

Veblen goods and neighbourhoods: endogenising consumption reference groups

One of the significant developments in the last four decades of economics is the growing empirical evidence that individual consumption preferences, as mea- sured by self-reported life satisfaction, are neither fixed nor self-centred but are instead overwhelmingly dominated by externalities, partly in the form of reference levels set by others and by one’s own experience. Welfare analysis recognising this fact is likely to indicate enormous revisions for macroeconomic policy and social objectives as well as for what is taught in economics at all levels. Yet the task of constructing general equilibrium models based on this microeconomic re- ality is still in its infancy. In this work I take the conventional stance that decision makers understand their own utility function. Therefore, they can choose the mi- lieu in which they immerse themselves with the sophisticated understanding that it will affect their own consumption reference levels and therefore the degree of satisfaction they derive from their private consumption. At the same time, their private consumption will help to set the reference level for others in their chosen group. I treat theoretically the problem of such endogenous formation of consump- tion reference groups in the context of a simultaneous choice of neighbourhoods and home consumption amongst a heterogenous population. For both discrete and continuous distributions of types, I find general equilibrium outcomes in which differentiation of neighbourhoods occurs endogenously and I compare the welfare implications of growth in such economies