“Utility and Happiness” + Other Recent Work on the Economics of Happiness at the University of...

“Utility and Happiness” + Other Recent Work on the

Economics of Happiness at the University of Michigan

Miles Kimball and Robert Willis

Jean-Benoit Rousseau

• First Ph.D. Dissertation in the in the U of M Economics Department entirely on the Economics of Happiness

• Understanding the Easterlin Paradox in the U.S.

• Life Cycle of Happiness for Men and Women

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Happiness by Income Quintile

Empirics of Hedonic Adaptation• “Dynamics of Happiness after Major Life Events

in the HRS”– Kimball, Ryan Nunn, Dan Silverman

• “Unhappiness After Hurricane Katrina”– Kimball, Helen Levy, Fumio Ohtake, Rousseau, Yoshiro

Tsutsui• “The Dynamics of Happiness: Evidence from Daily

Panel Data”– Kimball, Ohtake, Tsutsui

• Happiness and the 2008 Election – Kimball, Ohtake, Titiunik, Tsutsui

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“Utility and Happiness” by Miles Kimball and Robert Willis

2 Key Ideas

1.Price-Theoretic Approach to Happiness

2.Elation Theory of Happiness

The Price Theoretic Approach to Happiness:

vt =Et β jU(Xt+ j ,Ht+ j )∑

The Elation Theory of Happiness

Ht=M(Xt) + e(Xt,ιt,ιt−1,...)

ιt = vt − Et −1vt

(Happiness = Baseline Mood + Elation)

(Lifetime Utility Innovation)

Implication of Both Ideas Combined

EITHER• The integral of resulting elation measures the size

of a life-time utility innovation. OR• Preference for happiness will induce departures

from expected utility theory – after substituting the function for happiness into

the utility function, – even though we assumed expected utility over

the ultimate goods (including happiness)

The Price Theoretic Approach to Happiness:

vt =Et β jU(Xt+ j ,Ht+ j )∑

The Elation Theory of Happiness

Ht=M(Xt) + e(Xt,ιt,ιt−1,...)

ιt = vt − Et −1vt