THE ECONOMICS OF HAPPINESS: ASSESSSING WELL-BEING THROUGH THE

RELATIONSHIP BETWEEN INCOME AND HAPPINESS

A THESIS

Presented to

The Faculty of the Department of Economics and Business

The Colorado College

In Partial Fulfillment of the Requirements for the Degree

Bachelor of Arts

By

Keegan Flaherty Dollinger

May 2011

THE ECONOMICS OF HAPPINESS: ASSESSSING WELL-BEING THROUGH THE

RELATIONSHIP BETWEEN INCOME AND HAPPINESS

Keegan Dollinger

May 2011

Economics and Business

Abstract

The investigation of the relationship between income and happiness can provide

important insights into human’s material aspirations. By redefining the application of the

term utility, economics can be used to understand how money affects our happiness.

Today and in past years at a given point in time those with higher incomes are indeed

happier than those with lower incomes. However, raising the incomes of a nation does

not make that nation any happier. These conclusions are suggested by data on reported

happiness and income collected in the United States over the past forty years. The

paradox that takes place in this relationship has important public policy implications and

raises doubts on the primary economic goal of growth in GDP. This thesis hopes to

stimulate a debate that questions some of the basic tenets of economic theory that regard

the use of GDP as a measure of welfare and the simplistic and limiting role that is applied

to individuals in behavior models.

KEYWORDS: (Well-being, Happiness, Income, Utility)

TABLE OF CONTENTS

ABSTRACT

ACKNOWLEDGEMENTS

1 INTRODUCTION……………………………………………………………….. 1

2 LITERATURE REVIEW………………………………………………………... 10

3 RELEVANT THEORY………………………………………………………….. 19

4 HAPPINESS IN OTHER FIELDS……………………………………………… 25

5 DATA……………………………………………………………………………. 31

6 METHODOLOGY………………………………………………………………. 36

7 RESULTS………………………………………………………………………... 44

8 CONCLUSION………………………………………………………………….. 50

9 APPENDIX……………………………………………………………………… 57

10 WORKS CONSULTED………………………………………………………..... 59

LIST OF TABLES

6.1 Distribution of Population by Happiness at Various Levels of Income,

United States, 2006………………………………………………………………...

10

6.2 Regression with Happiness as Dependent Variable…………………………. 40

6.3 Happiness and Real GDP per Capita, United States, 1972 – 2008………….. 41

6.4 Regression of Happiness and Real GDP per Capita from, United States,

1972 – 2008………………………………………………………………………..

42

6.5 Regression of Happiness and Real GDP per Capita with First Difference….. 43

Acknowledgements

Esther Redmount

My Family

1

CHAPTER I

INTRODUCTION

―The professed object of Dr. Adam Smith‘s inquiry is the nature and causes of the wealth of

nations. There is another inquiry, however, perhaps still more interesting, which he occasionally

mixes with it, I mean an inquiry into the causes which affect the happiness of nations.‖

Malthus, 1778/1996: 303-4

Philosophers, writers, politicians, and the general public have long been

concerned with the question, ―Does money increase happiness?‖ Rational arguments

have been advanced on both sides of the issue. The average person is consumed with the

concern for accumulating more wealth. Even the wealthiest pursue incremental wealth

despite the marginal utility of each additional dollar. Regardless of their respective

economic situations, almost all humans are engaged in some sort of trivial pursuit of

wealth. The capitalistic system has implanted into the human psyche a relentless drive to

attain more money. With varying success, humans thus attempt to achieve happiness

through the acquisition of more money.

The study of happiness, as it relates to economics was largely dismissed as too

subjective and unnecessary for the first part of the 20th

century. The term utility was used

to account for the satisfaction an individual received from a good or service. Now

economists are looking at different ways to apply utility to analyze happiness through

economic theory. How can economics be used to provide people more happiness? Can

money buy happiness? Answering these questions is difficult, however it may be possible

2

through examining the relationship between income and happiness in a specific year and

across a span of forty years.

Over the course of time, many philosophers and thinkers have observed life and

concluded it for the most part represents a great tragedy. Sophocles thought it better not

to live at all, and wrote, ―Not to be born surpasses thought and speech. The second best

is to have seen the light and then to go back quickly whence we came.‖ Nevertheless,

studies across every social science, including psychology, sociology, philosophy, and

economics have largely disagreed with Sophocles and found for the most part that people

are generally happy, despite varying economic factors. This begs the question of

economists and academics: how do people judge happiness and how happiness is related

to income? As Malthus stated in the epigraph above, even Adam Smith inquired beyond

economic growth and the wealth of a nation and conducted a more imperative

investigation of the well-being or happiness of a nation.

Scholars are generally in agreement about economic theories of supply and

demand and how they drive consumer behavior. Economics as a discipline is based upon

empirical research. This thesis will use empirical evidence to investigate the relationship

between happiness and wealth, reconsidering the theory of utility in standard economic

thought. There is general agreement that economic growth leads to the growth of well-

being within a country. The United States appears to be a classic example of this

hypothesis, given the apparent satisfaction of a materialistic and money-oriented society

in the tangible gains of a capitalist economy. Both government and their populations

have generally accepted economic indicators as measure not only of the economic

condition but also of overall well-being of the country. Our capitalist economy has

3

reinforced the societal notion that money can buy happiness and that increases in income

will ultimately lead to higher levels of happiness at the aggregate and individual level.

The exclusive focus on economic growth that the United States and much of the

world appear to share and the widespread belief that economic growth is the first priority

in orchestrating economic policy has not come without its own problems. The capitalist

economic system is successful to a certain extent but still maintains certain flaws. The

way we construct our capitalist system should be adjusted to incorporate a more

comprehensive and conscientious understanding of the positive and negative implications

economic growth can have. The capitalist system that the United States adheres to

focuses too heavily on GDP and accumulation of money. If the government and the

people of the United States establish the importance of well-being before the primary

goal of growth, the United States may become happier.

The most significant complication in investigating happiness is determining an

appropriate and standard definition of happiness. Given the subjectivity of happiness as

experienced by the individuals and the variance of how each individual defines their own

happiness make it difficult to apply or establish a consistent definition.

The mind in its own place and in itself

Can make a Heaven or a Hell, a Hell or a Heaven

Paradise Lost

John Milton

An argument can be made in agreement with Milton that happiness is controlled

exclusively by the mind; the conditions in which we live can be made into a Hell or a

Heaven. But many still believe that it is not the mind that makes our world a paradise or

4

a purgatory, that makes us happy or miserable, but the conditions in which we live.1

Happiness is dependent on a combination of internal circumstances of a person‘s mind

and the external conditions in which the person lives. The dependence on external or

internal conditions is different for each person. Although each of our minds is distinct

and our happiness is sensitive to our individual psychological circumstances, external

conditions play a large role in our individual happiness.

Happiness is very difficult to measure among people and difficult for people to

even measure for themselves. The accuracy of measuring well-being has been under

much scrutiny. Reliability and validity issues can occur depending on whether

respondents report their true feelings or report feelings that may be impacted by biases

resulting from the context in which the question is asked. Extensive research has been

conducted in the study of psychology and economics attempting to test the validity of

different well-being measures (see Diener (1984) and Veenhoven (1993)). Psychologists

have been developing different measures of a person‘s happiness with the simple

question of ‗Taken all together, how would you say things are these days.‘ Although the

answers to these questions may not be completely accurate, they provide an important

indicator to a society‘s well-being. The general conclusion of such assessments is that

the subjective indicators can provide reliable reports of a person‘s general happiness due

to the substantial amounts of valid variance between the respondent‘s reports (Diener,

1984).2

1 Angus Campbell and University of Michigan, "The sense of well-being in America : recent

patterns and trends," (1980): 263.

2 R. A. Easterlin, "Income and happiness: Towards a unified theory," Economic Journal 111, no.

473 (2001): 465.

5

Happiness is conceived here as the degree to which an individual judges the

overall quality of his life favorably.3 In other words how well he/she likes the life he/she

leads. Throughout this thesis, I use the terms happiness, subjective well-being, life

satisfaction, utility, and welfare interchangeably. ―Reported subjective well-being‖ is the

scientific term used in psychology for an individual‘s evaluation of the extent to which an

individual judges their life as ―happy‖. Subjective well-being (SWB) is a far more

reliable measure of a person‘s well-being or a society‘s well-being than income or any

other measure.

Standard economic theory accounts for happiness through the theory of utility.

The definition and use of utility has undergone significant changes since the origin of

economics. The definition that has been accepted into common economic thought is the

one promulgated by Robin during the 1930s.4 Standard economic theory applies utility as

a measure of relative satisfaction but maintains the view that utility cannot be measured.

Utility is based on the simple notion of relative satisfaction from a certain good or

product. In the 1930s, economic theory was fundamentally changed by two ideas

advanced forcefully in the ―ordinalist revolution‖: that utility cannot be measured and

that it is not necessary to measure utility to derive the major microeconomic propositions.

At the time, these ideas were rightly considered to be a successful ―revolution‖ in

economics. Microeconomics thereafter adopted them as a major element—perhaps even

the essential element of microeconomic theory.

3 R. Veenhoven, "Is happiness relative?" Social Indicators Research 24, no. 1 (1991): 1-34.

4 R. Cooter, "Were the ordinalists wrong about welfare economics?" Journal of economic

literature 22 (1984): 507.

6

Recent literature contradicts the conceptual application of happiness in standard

economics. Using measures established by psychology, economists have made strides

into developing an indicator that combines economic growth with the growth of well-

being. Many economists are beginning to accept the notion that utility can be measured

and applied to economic and political decisions. The studies conducted by Easterlin that

proposed the happiness paradox were groundbreaking in the study of well-being. The

seminal study conducted by Easterlin in 1973 reported, on the basis of studies of

happiness in some 19 countries: ―In all societies, more money for the individual typically

means more individual happiness. However, raising the incomes of all does not increase

the happiness of all.‖5 To ascertain the effect of money per se, one must examine the

average level of happiness in a poorer person versus a richer person. Thus, according to

this explanation of the data, money does not make people happy because it gives them

more buying power per se; rather they tend to become happier if they have more money

relative to others. Economists have examined the relationship between income and well-

being through different methods in countries all over the world. Economists have looked

at accident victims and lottery winners to understand the impact money can have on an

individual. Developing new ways of measuring happiness and different ways of

examining the impact of income on happiness is essential to the study of economics.

Studying the relationship between wealth and happiness involves combining

many different disciplines of the social sciences, principally economics and psychology.

Although it is impossible to perform the study without using the study of psychology, this

study will focus on economics and how it can be used to demonstrate the negative

5 R. A. Easterlin, "Will raising the incomes of all increase the happiness of all?" Journal of

economic behavior organization 27, no. 1 (1995): 35.

7

relationship between wealth and happiness. The study of happiness is a relatively new

concept, especially in economics. Some argue that wealth is not a meaningful factor in

happiness. Robert Lane makes an argument that happiness is not based on income

whatsoever, but in fact based on family life and social support namely companionship.6

Lane argues that in any tradeoff between two goods, money and companionship, where

money is relatively plentiful and companionship relatively scarce, companionship will

add more to SWB than money. Michael Argyle in his book, ―The Psychology of

Happiness‖ finds that the establishment of a satisfying state of affairs in social relations,

work and leisure do not depend much on wealth, either absolute or relative, or on the

material conditions of life.7

Happiness theory reverses the two claims: Happiness theory posits that it is

possible to use measures of subjective well-being as a (reasonably) good proxy for the

theoretical concept of utility as preference satisfaction and measurement is sometimes

needed and can be used effectively to deal with important issues addressed by economics.

Happiness research opens new avenues and suggests new aspects that have so far been

disregarded or found to be unproductive at the microeconomic and macroeconomic level.

Economic theory lacks a subjective measure of people‘s well-being. Incorporating SWB

into economic theory will have a profound effect on objective measures like Gross

Domestic Product.

GDP is a measure of productivity rather than consumption which gives a rather

skewed perception of the economy because economic growth is based on consumption

6 R. E. Lane, "Diminishing Returns to Income, Companionship and Happiness," Journal of

happiness studies 1, no. 1 (2000): 103.

7 Michael Argyle, The psychology of happiness, (London; New York: Methuen, 1987), 208.

8

rather than growth. There is a significant gap in current economic theory given the lack of

tools that that account for the subjective components driving happiness beyond the

monetary income of an individual. Although GDP is largely successful in representing

the growth and decline of a nation it has serious flaws and lacks necessary indicators in

measuring the well-being of the citizens. The research of happiness through economics

hopes to encourage a debate to some of the basic tenets of economics; dissatisfaction with

the use of GDP as an accurate measure and the simplistic role that individuals play in

economic models.

In past few years countries are beginning to acknowledge the lack of subjective

measures in their policy decisions. Humans and individuals are not treated like people

but like utility maximizing machines. The country of Bhutan adopted a measure of Gross

National Happiness rather than a measure of Gross Domestic Product. Even in developed

countries like Great Britain, the Prime Minister David Cameron has decided to create a

national happiness index providing quarterly measure of how citizens feel. Certain cities

in the United States have begun incorporating questions of happiness in their census.

Beginning to develop an understanding of the relationship between income and our

general well-being is important in developing ways to improve our overall well-being.

Moving beyond the traditional measures of economic growth to promote policies that

offer more than just material well-being. We would do well to revisit the famous words

of the constitution and instead of pursuing the narrow goal of mere incremental wealth

redirect our efforts towards the ―the pursuit of happiness.‖

9

CHAPTER II

LITERATURE REVIEW

Economists as well as the general public have generally accepted that economic

growth and wealth will increase the overall level of well-being in a country. It is still

generally acknowledged that the moral justification of the economist‘s job is to be found

in the persuasion that increases wealth, income, or goods to create the preconditions for

greater well-being and happiness.1 To a certain extent wealth has a positive correlation

with happiness but recent findings have found that this is not always the case.

Understanding the role that happiness plays in economics is important and helpful in

providing a more accurate portrait of humans. The conception and application of utility

has undergone significant changes in classical economic theory and perhaps the accepted

notion that happiness and utility cannot be measured is erroneous. Extensive literature

has been published regarding the relationship of wealth and happiness. This literature

review will begin with how the concept of happiness has progressed in economics,

provide a better understanding of how happiness is defined, and then examine recent

research that has been done regarding the relationship between wealth and happiness.

Some economists, albeit not directly, have acknowledged the relationship

between wealth and well-being. The study of well-being can be traced back to the

developments of the Italian and Scottish writers in the Classical Period; in particular, it

found fertile ground in Adam Smith‘s Theory of Moral Sentiments. We can trace a line of

1 Luigino Bruni and Pier Luigi Porta, Economics and happiness: framing the analysis, (Oxford;

New York: Oxford University Press, 2005), 1-366.

10

thinking, linking up, for example, Malthus‘s Essay on Population, Marshall‘s social

economics, Veblen‘s ―conspicuous consumption‖, Galbraith‘s criticism of the ―affluent

society‖, and more recently Duesenberry‘s (1949) social theories of consumption based

on interpersonal comparisons. These early conceptions of well-being are important to

understand and have had a profound impact on the most recent research on economic

well-being.

A pivotal study was conducted by Moses Ambramovitz (1959) on the effect

income and wealth had on a nation‘s well being. In ―The Welfare Interpretation of

National Income and Product‖ he concluded that, ―we must be highly skeptical of the

view that long term changes in the rate of growth of welfare can be gauged even roughly

from changes in the rate of growth of output.‖2 Bernard van Praag, in his doctoral thesis

(1968), showed an unusual and heterodox interest in investigating wealth and well being

amidst the almost complete indifference of mainstream economists. Van Praag rejected

contemporary economic theory and believed that utility could be cardinally measured and

accepted interpersonal comparability—as the first Utilitarians had done.3 Although

studies of happiness were creating revolutionary conclusions, many were dismissed and

largely unacknowledged by mainstream economics. Although these studies were

revolutionary contemporary studies challenges these studies and in line with the

economic school of thought, still found that happiness was dependent on income and

2 Easterlin, "Will raising the incomes of all increase the happiness of all?" 89-93.

3 Bruni and Porta, 3-5.

11

economic growth.4 Economic theory has still rejected the ideas proposed by studies of

happiness, leaving the subject highly controversial.

Only until the influential work of Richard Easterlin (1974) did an economist

undertake a direct investigation of the idea of happiness. Easterlin began using happiness

indexes in certain countries to explore the relationship they had to income levels at a

point in time and over a longer period of time.5 Tibor Scitovsky further expanded the

ideas promulgated by Easterlin in the Joyless Economy where he uses the research

conducted by Easterlin to develop the relationship between income and happiness.6

Easterlin accumulated his data on subjective well-being (SWB) through two different

measures.

The first was through the Gallup poll with responses from a subjective evaluation

of well-being where the individual respondent was asked the direct question; ―In general,

how happy would you say that you are—very happy, fairly happy or not very happy?‖7

Easterlin also used data from a more sophisticated procedure, devised by the psychologist

Hadley Cantril that uses a ―Self-Anchoring Striving Scale‖ with a happiness scale across

numbers 1 through 10.8 Both sets of data revealed that within a single country at a given

moment in time, the correlation between income and happiness exists and is robust. But

across time there is ―empirical evidence for the US showing that income growth does not

4William D. Nordhaus and James Tobin,‖Is Growth Obsolete?‖ The Measurement of Economic

and Social Performance (1973): 510-532.

5 Easterlin, "Income and happiness: Towards a unified theory," The Economic Journal (2001):

465-484.

6 T. Scitovsky, The joyless economy: An inquiry into human satisfaction and consumer

dissatisfaction, 1976)

7 Richard Easterlin,‖Does Economic Growth Improve the Human Lot? Some Empirical

Evidence.‖ The Economic Journal (1974): 91-122.

8 Ibid.

12

lead to higher levels of happiness, a finding that has been supported by further studies

(Caporale, Georgellis, Tsitsianis, Yi, 2009). In cross sectional differences among

countries the positive association between wealth and happiness, although present, is

neither general nor robust and poorer countries do not always appear to be less happy

than richer countries. The most significant finding from the data in Easterlin‘s study was

the time series analysis. At the national level over 25 years (from 1946 to 1970 in the

US) per capita real income rose by more than 60 percent, but the level of happiness

showed no significant increase.

There is consistency among the studies and national surveys that that there is a

significant positive bivariate relationship between income and happiness. The absolute

income hypothesis establishes this idea: it states that the level of utility varies positively

with the level of income up to a threshold level beyond which utility remains largely

invariant9. The absolute income hypothesis has only been found to have significant

results within a certain country at given time. Along with Easterlin (1974) economists

(Diener, 1993; Frey & Stutzer, 1993) have come to the same conclusion that income has

significantly positive relationship with happiness.

Recent studies have also shown that once people reach a certain income, they do

not receive any additional significant utility or happiness with increased income; this line

of thought is consistent with the economic theory of diminishing marginal utility of

income. Research done by Kahneman and Deaton came to the conclusion that there is no

further progress of happiness or well-being once a person achieves an annual income of

9 G. M. Caporale, "Income and happiness across Europe: Do reference values matter?" Journal of

economic psychology 30, no. 1 (2009): 42.

13

$75,000.10

Related to Kahneman and Deaton Dan Pink has found that income and money

may not be the best motivator for productivity. He found that for tasks that are above

mechanical and call for rudimentary cognitive skill a larger reward led to poorer

performance. He makes the argument that once you pay employees a salary that satisfies

their financial security, any incremental income is superfluous and does not affect their

productivity.11

This idea is incongruent with economic theory and encourages the idea

that people care for things more than just money.

The idea that human well-being in terms of income is not based on an absolute

income but on an income relative to others‘ income is not new. Thorstein Veblen (1899)

noted ―conspicuous consumption‖ to describe how individuals compared themselves to

others with respect to income, consumption, status, or utility. A growing body of

empirical evidence supports the relative income hypothesis. The theory was first

introduced by Easterlin basing his ideas on Duesenberry‘s (1949) idea of ―relative

consumption‖ which argues that persons are not completely concerned with their absolute

income but their income relative to others. As Clark and Oswald (1996) show, controlling

for standard individual and demographic characteristics, utility depends on income

relative to some reference or comparison income, based on the predicted income of

‗people like you‘.

An alternative theory for the happiness paradox has been explained by the

―treadmill‖ hypothesis. The ―treadmill‖ hypothesis was first introduced by Easterlin and

is similar to the relative income hypothesis. The treadmill theory is based on the ―set

10 D. Kahneman, "Would you be happier if you were richer? A focusing illusion," Science 312,

no. 5782 (2006): 1908.

11

Daniel Pink, Drive: The surprising truth about what motivates us. (New York: Riverhead, 2005),

1-85.

14

point theory‖ which is the idea that there is a level of happiness that remains constant

during the life cycle. This is due to personality and temperament variables that seem to

play a strong role in determining the level of happiness of individuals; such

characteristics are innate to individuals. Kahneman writes, ―Individuals exposed to life

altering events ultimately return to a level of well-being that is characteristic of their

personality, sometimes by generating good or bad outcomes that restore this

characteristic level.‖12

The set-point theory helps explain the hedonic treadmill, which

describes why people have not grown happier with economic growth.

The ―hedonic treadmill,‖ a metaphor coined by Brickman and Campbell, means

that one is running constantly and yet remains in the same place because the treadmill

runs at the same place—or even faster but in the opposite direction.13

Van Praag (1971)

was the first economist to explore the hypothesis of adaptation but under the name ―the

preference drift‖ phenomenon.14

Krueger (2006). Stutzer analyzed the role aspirations

played in terms of well-being and found that the higher income aspirations reduce

people‘s satisfaction in life.15

Kahneman makes an important distinction between two

types of treadmill effect, namely, the hedonic treadmill and the satisfaction treadmill.

The hedonic treadmill depends on adaptation, while the satisfaction treadmill is reliant on

12 Daniel K. Kahneman and Richard Thaler, "Economic analysis and the psychology of utility:

Applications to compensation policy," American Economic Review 81, no. 2 (1991): 341.

13

Philip Brickman, Dan Coates, and Ronnie Janoff-Bulman, "Lottery winners and accident

victims: Is happiness relative?" Journal of personality and social psychology 36, no. 8 (1978): 917-927.

14

B. Van Praag, "Ordinal and cardinal utility:: An integration of the two dimensions of the

welfare concept," Journal of Econometrics 50, no. 1-2 (1991): 69-89.

15

A. Stutzer, "The role of income aspirations in individual happiness," Journal of economic

behavior organization 54, no. 1 (2004): 105.

15

aspiration. The satisfaction treadmill works in such a way that one‘s subjective happiness

remains constant even when one‘s objective happiness improves.

Economists, in measuring well-being, have largely abandoned the term happiness.

Veenhoven defines happiness as the degree to which an individual judges the overall

quality of his life favorably. In other words: how well he likes the life he leads.

Happiness in this context can be called ‗life satisfaction‘.16

Emotional well-being refers

to the hedonic and emotional quality of an individual‘s everyday experience—the

frequency and intensity of experiences of joy, stress, sadness, anger, and affection that

make one‘s life pleasant or unpleasant. Life evaluation or satisfaction can be

differentiated referring solely to a person‘s thoughts about his or her life17

. Economic

studies have focused more on an individual‘s life satisfaction as a closer estimate of a

person‘s well-being. Psychologists draw a distinction between the well-being from life

as a whole and the well-being associated with a single area of life: these they term

‗context-free‘ and ‗context-specific‘.18

Mariano Rojas uses the conceptual-referent

theory to explain the weak relationship between income and happiness. The study

defines eight conceptual types of happiness from philosophical essays on happiness;

stoicism, virtue, enjoyment, carpe diem, satisfaction, utopian, tranquility and

fulfillment.19

Developing a universal definition of happiness is difficult but not

impossible and can provide useful insights into the psyche of a society.

16 R. Veenhoven, "Is happiness relative?" Social Indicators Research 24, no. 1 (1991): 1-34.

17

Kahneman, 16489-16493.

18

D. G. Blanchflower, "Well-being over time in Britain and the USA," Journal of public

economics 88, no. 7-8 (2004): 1359-1361.

19

Mariano Rojas, "Heterogeneity in the relationship between income and happiness: A

conceptual-referent-theory explanation," Journal of Economic Psychology 28, no. 1 (2007): 1-14.

16

An important component to the theory of utility is the law of diminishing

marginal utility. The idea of marginal utility was perhaps introduced by Aristotle in

Politics, ―External goods have a limit, like any other instrument, and all things useful are

of such a nature that where there is too much of them they must either do harm, or at any

rate be of no use.‖ The law of diminishing marginal utility of income describes the utility

a person derives from a stock, as the utility increases it does so at a decreasing rate. This

is important to understanding happiness and supports the theories behind a progressive

income tax. The amount of utility that the very wealthy receive from an extra $100 is

minimal compared to the utility to a person with a lower income. Studies have been done

to try to determine a minimum income level where a person is able to comfortably meet

all their economic needs with additional income providing little or no additional utility.

Studies have been conducted at the individual level looking at the way people

have been affected by winning large sums of money. The results vary significantly from

individual to individual and contradict expectations. A study in Great Britain of 191

British football pool winners, all of whom won more than 160,000 pounds, found that

many of them claimed to be a little happier than before, but many experienced quite

serious problems: the winners were pestered with requests for money; some were more

lonelier due to quitting their jobs, proving that a purely financial view of happiness had

failed to capture the positive affect the consistent social network that a steady job

provides.20

Studies by Brickman and Coates have used the unique situations of lottery

winners and accident victims in measuring the relativity of well-being in the context of

wealth. They found that in general quadriplegics reported lower present happiness and

greater past happiness compared with controls, which does not encourage the idea that

20 Michael Argyle, The psychology of happiness, (London; New York: Methuen, 1987), 253.

17

people‘s well-being adapts to new situations. The findings are significant because they

are able to analyze a unique situation in terms of well-being and do not completely agree

with the psychological theory of adaptation.

Although there are many critics of studying happiness through economics, the

literature is extensive. The findings of Richard Easterlin have been the most significant,

encouraging many other economists to examine happiness across all parts of the world to

truly test the accuracy of existing hypotheses. Many recent findings diverge away from

standard economic theory. The next chapter will follow how the study of economics has

dealt with the idea of well-being through the term utility.

18

CHAPTER III

RELEVANT THEORY

The term ―happiness‖ in economics was abandoned for ―ophelimity‖ and later on

for ―well-being‖, or ―welfare‖, and then for the even less emotionally loaded term

―utility‖ or ―satisfaction‖.1 Now the closest standard economics comes to accounting for

happiness is through the concept of utility. Utility is the measure of satisfaction; the

number of utils one receives from a certain good represents the amount of satisfaction

provided by that good. Utilitarians, Jeremy Bentham and John Stuart Mill, developed the

idea of utility during the 18th

century encouraging society to maximize the total utility of

individuals. The first thorough introductions of the concept were those by Gossen

(1854), Jevons (1871) and Edgeworth (1881).2 The development of utility theory in

economics has undergone two definitive episodes; the ―marginalist revolution‖ of the

1870s and the ―Hicksian‖ or ―ordinalist revolution‖ of the 1930s. The ideas of

utilitarianism and the development of utility in economic theory are essential in

understanding the role of happiness in economics.

Utilitarianism is a broad tradition of thought that was advanced during the19th

century with the notion that morality and politics are centrally concerned with the

promotion of happiness. Jeremy Bentham, an English utilitarian, introduced the utilitarian

1 Luigino Bruni and Pier Luigi Porta, Economics and happiness: framing the analysis, (Oxford;

New York: Oxford University Press, 2005), 1-366.

2 B. Van Praag, "Ordinal and cardinal utility:: An integration of the two dimensions of the welfare

concept," Journal of Econometrics 50, no. 1-2 (1991): 69-89.

19

principle (the greatest happiness principle). He believed that the legislator‘s job is to use

her knowledge of human nature to design laws that maximize the happiness of her

people. An important clarification is that Bentham‘s definition of utility is equivalent to

―instrumental for happiness.‖3 Bentham also coined the phrase, ―the greatest happiness

of the greatest number‖. John Stuart Mill, another utilitarian, followed some of the same

ideas as Bentham and was interested in the idea of what happiness is and what makes

humans happy? Mill followed a more empirical approach to answering these questions,

differing from Bentham. He made a shift in focus from individual happiness to aggregate

happiness and posited the claim that happiness is the only end objective: that everything

we desire is either a part of happiness, or a means to happiness.

Bentham was largely criticized for his assertion that happiness can be measured

on a quantitative level. Mill addressed the issue of measuring utility and happiness by

replacing the quantitative approach with a qualitative measure. In defining happiness

Mill asserts,

―By happiness is intended pleasure, and the absence of pain; by unhappiness

pain, and the privation of pleasure. It is quite compatible with the principle of

utility to recognize the fact, that some kinds of pleasure are more desirable and

more valuable than others. It would be absurd to assume that while, in

establishing all other things, quality is considered as well as quantity, the

establishment of pleasure should be supposed to depend on quantity alone.‖ 4

Bentham focuses on the intensity of pleasure while Mill believes there are different kinds

of pleasure and only someone who has experienced both can decide which one provides

3 Tim Mulgan, Understanding utilitarianism, (Stocksfield: Acumen, 2007), 194. p.10

4 John Stuart Mill and Inc NetLibrary, Utilitarianism, (Oxford: Oxford University Press, 1998),

55.

20

more happiness.5 The insights that Bentham and Mill made with the tradition of

utilitarianism were important steps in trying to incorporate the idea of happiness into the

political sphere.

Until the Marginalist Revolution classical economic theory lacked a systemic

approach to the idea of utility; a direct approach for accounting for consumer preferences

was largely, although not completely, absent from the works of Adam Smith and David

Ricardo. The disinterest in utility theory can be explained by the paradox of value; since

water during this period had a high use-value but a low price, and the reverse held for

diamonds, utility theory did not prove to be a theory capable of explaining prices and was

thus disregarded. Although they lacked a systemic account of utility, Smith and Mill still

acknowledged the idea of utility and its application. The material welfare school followed

the ideas promoted by the marginalist revolution and evaluated social welfare on a

comparability convention. Utility rankings were not seen as coextensive with preferences

orderings, nor were they derived from them. Essentially, goods were seen as having

utility if they contributed to a person‘s physical well-being (physical well-being as an

objective measure opposed to a person‘s enjoyment or emotional well-being which is

more subjective).

During the latter half of the 19th

century economists began to construct a theory

around utility. Economists agree that individuals strive for the greatest happiness. Let us

assume two situations x1 and x2 and let us assume that the two situations generate

happiness values W1 and W2 where W2 > W1. Then the individual will choose x2, if that

situation is a choice set, and it follows that the function W(x) describes a very basic

5 Van Praag, 71.

21

aspect of human behavior.6 Choice between scare things is the core subject of economics.

Francis Edgeworth in his book Mathematical Physics (1881) proposed a function where

W can be cardinally measured. If W(x1) = 1 and W(x2) = 2, then the individual derives

twice as much utility (or happiness) from x2 as from x1. Pareto (1909) was the first to

raise doubts about the practical possibility of observing and estimating the function W.

Moreover, he showed that in the case of static consumer behavior we do not need to

know the function itself but only its contour lines, the so-called indifference curves.7 An

indifference curve is a representation of the utility that can be provided to an individual

consumer across a bundle of goods. Pareto articulated a theory of markets based upon

constrained optimization, and successfully integrated production in the marginal

framework. Pareto‘s idea of efficiency and optimization is still used in standard

economic theory; the concept being that an economy is ―Pareto efficient‖ only when any

changes in the allocation of goods can no longer be made without making at least one

individual worse off.

The ordinalist revolution took place in the 1930s when Robins published his

Essay on the Nature and Significance of Economic Science attacking the material welfare

school of thought.8 The ordinalist school of thought differed from the material welfare

school in that they emphasized the scarcity of goods while the material welfare school

emphasized the importance of material welfare and the application of utility. Opposed to

the objective definition of utility under the material welfare school, the ordinalists

6 Ibid.

7 Ibid.

8 R. Cooter, "Were the ordinalists wrong about welfare economics?" Journal of economic

literature 22 (1984): 507-525.

22

adopted the more subjective definition of utility as satisfaction of desire. John Hicks

followed Robins in1934 with ―A Reconsideration of the Theory of Value,‖ provided an

alternative theory for consumer behavior using utility strictly to determine revealed

preference.9 Robbins assembled the elements of a new economic framework by joining

the scarcity definition of economics with the positivist conception while Hicks completed

the conception of utility10

. Houthaker (1950) provided explanations of demand behavior

without applying the utility concept. Deaton and Muellbauer (1982) made similar

observations in terms of utility allowing the utility concept to be used solely as a

handsome tool to describe choice behavior.11

The definition and application of utility for

standard economic theory was established during the ordinalist revolution.

Standard economic theory applies utility in two major ways; through the budget

constraint and indifference curves. The budget constraint represents the combination of

the goods and services that a consumer can attain given current prices with his or her

income. The indifference curves can be applied to the budget constraint and show at the

point of tangency between the indifference curve and the budget constraint the maximum

utility that can be achieved for the consumer. Although narrow, this application of utility

is useful in predicting consumer behavior.

The ordinalist revolution restricted the concept of utility acceptable to economics

by rejecting the cardinal measurements and interpersonal comparisons of utility and

restricting the inquiry to consumer behavior. The conception of utility espoused in the

ordinalist revolution has been generally accepted into neoclassical economics. Some

9 Ibid.

10

Ibid.

11

Van Praag, 70.

23

economists especially in the study of happiness are beginning to question the dogma

established by Robbins and Hicks during the ordinalist revolution. Cooter and Rappoport

argue ―that the ordinalist revolution represented a change, not progress in economics.‖

Many economists have disagreed with the limiting doctrine established by the ordinalist

revolution (Shubik, 1982; Harsanyi, 1986). A study conducted by Van Praag (1991)

argues for the cardinal dimension of utility of behavioral economics by analyzing two

instruments to measure utility.12

Perhaps utility can be measured and provide useful

insights into the complex economics of human desires and wants.

This thesis will critique the view established by the ordinalists that utility and

happiness cannot be measured. The next section will show the breakthroughs in other

fields of study that will allow the study of economics to apply cardinal measures to the

idea of happiness. This thesis will also still employ commonly accepted theories of

modern economics like diminishing marginal utility. The rejection of the ordinalist

concept of utility will allow for a more intricate and expansive understanding of a

person‘s well-being in an economic perspective.

12

Ibid.

24

CHAPTER IV

HAPPINESS IN OTHER FIELDS

Mainstream economics has only just begun to make insights into the field of

happiness and well-being, while other social sciences have been studying the subject for

years. During the 1920s sociologists made the first steps into studying happiness by

attempting to understand social indicators that could assess a person‘s quality of life.

William Ogburn launched a social research program on the quality of life that went

beyond GDP per capita by examining certain social indicators to predict social behavior.1

In 1954, the United Nations nominated a commission with the task of defining more

precisely the items, which make up the standard of living concept.2 Happiness inherently

is a subject that crosses the boundaries of individual fields of the social sciences,

requiring the integration of different fields of study. Economics can only reveal how

certain economic concepts relate to the idea of happiness. Experts in other fields are

confronting the same obstacles faced by economists. Although economists can provide

important research in the study of happiness, the integration of different fields of study is

required to make progress in understanding why certain people are happier than others

and how to improve social well-being.

The subjective nature of assessing happiness makes it difficult to apply an

objective definition. The question, ―How are you?‖ may seem simple, but the answer can

1 Luigino Bruni and Pier Luigi Porta, Economics and happiness: framing the analysis, (Oxford;

New York: Oxford University Press, 2005), 5.

2 Ibid.

25

become very complicated drawing attention to the very personal and controversial

elements of well-being. Well-being is a complex construct that concerns optimal

experience and functioning. Current research in psychology on well being has been

derived from two general perspectives: the hedonic approach, which focuses on

happiness and defines well-being in terms of pleasure attainment and pain avoidance; and

the eudaimonic approach, which focuses on meaning and self-realization and defines

well-being in terms of the degree to which a person is fully functioning.3 The latter

approach emphasizes the idea that there is more to well-being than just hedonism.

The subjectivity of happiness is a major obstacle in trying to ascertain a person‘s

true well-being. Psychologists have progressed substantially in utilizing different

techniques in assessing an individual‘s well-being. Smith (1979) examines trends in

psychological well-being in the United States since the Second World War. To measure

these trends, Smith used a series of surveys with questions on subjective, personal

happiness. He assessed the stability of happiness measures by comparing the

measurement of happiness with the stability of other items; years of education and health

and relatively unstable items like civil liberties of socialists and homosexuals. He

concluded that, ―In sum, it appears that happiness shows a high enough level of temporal

stability to indicate that it is being meaningful and consistently understood by

respondents (see also Wilson, 1967:294; and Robinson and Shaver, 1969:17).‖4

Many behavioral scientists believe that humans are predominantly dissatisfied and

unhappy. Extensive evidence, however suggests otherwise. Subjective well-being

3 R. M. Ryan, "On happiness and human potentials: A review of research on hedonic and

eudaimonic well-being," Annual Review of Psychology 52 (2001): 141.p.142

4 Tom W. Smith, "Happiness: Time Trends, Seasonal Variations, Intersurvey Differences, and

Other Mysteries," Social psychology quarterly 42, no. 1 (1979): pp. 18-30.p.20

26

(SWB), referred to colloquially as ―happiness,‖ is a person‘s evaluation of his or her life.

This evaluation is both cognitive and affective. Most life satisfaction scales that are used

by economists have a neutral point at which the person reports equal amounts of

satisfaction and dissatisfaction. Above this point, response alternatives are labeled with

varying degrees of satisfaction, and below this point, the options indicate dissatisfaction.

Gurin, Veroff and Feld (1960) provide data from a U.S. national survey that found most

people have reported a positive level of SWB; 89% placed themselves in the ―very

happy‖ or ―pretty happy‖ groups with only 11% saying they were ―not too happy.‖

Diener and Diener by evaluating a number of studies, Andrew and Withey (1976),

Veenhoven (1993), and Diener, Fujita, & Sandvik (1994), found not only at the national

level but at the global level from poor to rich countries there are more happy than

unhappy people.5

Determining what causes people to be happier or have a higher well-being is more

complex and difficult to assess. The study of psychology has explored happiness from a

different perspective and investigated the way individual characteristics impact a person‘s

well-being. An important component in the field of psychology largely left absent from

the field of economics is the role certain characteristics or personality factors play in

determining an individual‘s well-being. DeNeve (1999) suggested that subjective well-

being is determined largely by genetic factors and argued that SWB is relatively stable

across the life span. DeNeve & Cooper reported that extraversion and agreeableness were

consistently positively associated with SWB, whereas neuroticism was consistently

5 Ed Diener and Carol Diener, "Most People are Happy," Psychological Science (Wiley-

Blackwell) 7, no. 3 (1996): 181-185.

27

negatively associated with it.6 Other psychological studies have highlighted the

importance of supportive interpersonal relationships for well-being; Baumeister & Leary

argue that relatedness is a basic human need essential to well-being.

Psychologists have studied the relationship between wealth and happiness. The

conclusions they have come to are largely consistent with economic findings but are

important in providing a more holistic approach. At the basic level, psychologically

money can reduce distress, for instance caused by hunger, and it can add to joy, for

example by making possible expensive forms of leisure.7 Those people who have larger

incomes are a little more satisfied with their incomes and their standard of living than

other people. However, this is a surprisingly weak relationship—corresponding to a

relationship of .15 or .20 (Campbell, Converse and Rodgers, 1976; Liang and Fairchild,

1979; Michaelos, 1980). A psychology study by Bradburn (1984) found that income

made more difference to positive than to negative effects, and the positive effects were

more marked at the upper end of the income range, while the reduction of negative affect

was more marked at the lower end. Some studies have found that greater wealth or

income does not necessarily provide greater happiness. Greater wealth can lead to the

removal of material worries, but perhaps the focus of worry shifts to personal and

interpersonal problems, which cannot be solved by money.8 Richard Lane found that

there is a tendency for poor people to worry about problems which are more soluble, for

6 Ryan, 149.

7 Michael Argyle, The psychology of happiness, (London; New York: Methuen, 1987), 93-98.

8 Ibid.

28

richer people to worry about less insoluble problems—like satisfaction with self and

interpersonal problems.9

Diener & Diener (1995) examined the relations of family, friends, and finance to

life satisfaction and concluded that financial status was more correlated with life

satisfaction in poorer nations than wealthier nations.10

Kasser and Ryan (1993, 1996)

related money and materialism to well-being, highlighting the difference between people

who are focused on wealth rather than relationships and personal growth. Several studies

have supported this model, showing that people more focused on financial wealth and

materialistic goals have lower levels of well-being. Schmuck (2000) confirmed the

findings in Germany while the same conclusions were made in less developed countries

like Russia and India (Ryan et al 1999).11

Veenhoven examined the relativity of

happiness discovered in economics from a sociological perspective. Veenhoven

concluded that happiness in the sense of life-satisfaction depends only partly comparisons

to people or the neighborhood of a specific person. He found that even the standards of

comparison do not fully adjust to circumstances and environment of an individual.12

The psychological theory of adaptation is applicable in examining the relativity

of income and satisfaction. If someone is asked to judge the weights of a number of

objects weighing between 2 and 6 ounces, and is then given a one-pounder it will seem

‗heavy‘, whereas if he had been judging 3 to 6 pound objects it would seem ‗light‘.

Stimuli are judged against a standard based on the range of stimuli which have been

9 R. E. Lane, "Diminishing Returns to Income, Companionship and Happiness," Journal of

happiness studies 1, no. 1 (2000): 103.

10 Diener and Diener, 181-185.

11

Ryan, 151.

12

R. Veenhoven, "Is happiness relative?" Social Indicators Research 24, no. 1 (1991): 1-34.

29

experienced in the past. The process of adaptation is likely to occur in the same objective

conditions of income and could be sources of pleasure or pain depending on the previous

adaptation level. The idea of adaptation is more fully explored by studies conducted on

lottery winners. Adaptation theory provides a further explanation, if one is needed, for

the small difference in satisfaction between countries and classes, and for the relatively

high happiness of the seriously handicapped. It makes a number of interesting and

unexpected, predictions about how to enhance satisfaction. There is one possibly fatal

objection however; some people are very happy, while others are very depressed. Why

has adaptation not taken place (Freedman, 1978)?13

A multi-disciplinary approach is essential to any study of happiness because the

findings from other social sciences are so closely related to studies by economists.

Theories introduced by psychologists like adaptation theory can be directly applied and

used to explain studies by economists. This thesis will employ the more developed and

elaborate measures of well-being from psychological studies.

13 Argyle, 154.

30

CHAPTER V

DATA

―The notion of happiness is so indefinite that, although every man wishes to attain it, yet he can

never say definitely and consistently what he really wishes and wills.‖

Immanuel Kant

Although some like Kant, believe happiness is so indefinite that it cannot be

measured, there are measures that are not only valid but also useful. Since the early

1900s sociologists and psychologists have been attempting to develop ways to accurately

measure happiness or well-being. The process is complicated; everybody has different

definitions of happiness. At the most basic level, well-being can be measured by the

satisfaction that an individual has with their current life. Certain measures of well-being

include social indicators that go beyond just life satisfaction and include physical health

and more complicated procedures to determine a person‘s overall well-being. Being able

to measure society‘s well-being as a whole is very important and determining what

makes people happy has significant implications for the government policy. Policies that

increase overall happiness are arguably more important than policies that increase

economic growth. Progress in determining what makes people happy has forced

economists to abandon a rigid definition of utility. Surveys and studies by economists

and psychologists have been making progress in developing more accurate measures.

Social indicators can be classified into two broad types: (1) those based on reports

about experiences and characteristics of the reporter‘s own personal life, and (2) those

based on reports of events or situations which are not part of the reporter‘s own life.

31

Sometimes these two types of indicators have been referred to as ‗subjective‘ and

‗objective‘ respectively, though it can be argued that certain experiential measures are at

least as objective as many of the so-called objective measures. Examples of the first class

of social indicators would include reports by respondents of their sense of safety when

they go out alone at night, or their sense of satisfaction with the amount of safety they

perceive. Examples of the second class would include crime reports for a particular

neighborhood or measures of street lighting and police patrols. This thesis will focus on

the individual‘s personal assessment of subjective well-being.

The theory that happiness is relative is based on three postulates: (1) happiness

results from comparison, (2) standards of comparison adjust, (3) standards of comparison

are arbitrary constructs. On the basis of these postulates the theory predicts: (a)

happiness does not depend on real quality of life, (b) changes in living-conditions to the

good or the bad have only a short lived effect on happiness, (c) people are happier after

hard times, (d) people are typically neutral about their life. Together these inferences

imply that happiness is both an evasive and an inconsequential matter, which is at odds

with core beliefs in present day welfare society1.

Hadley Cantril, a psychologist, developed a sophisticated and influential measure

of well-being. Cantril, a social psychologist carried out an intensive survey in fourteen

countries with highly diverse cultures and at widely different stages in socio-economic

development, asking open-ended questions about what people want out of life. Cantril

calls the technique the ―Self-Anchoring Striving Scale‖:

A person is asked to define on the basis of his own assumptions, perceptions, goals,

and value the two extremes or anchoring points of the spectrum on which some scale

1 R. Veenhoven, "Is happiness relative?" Social Indicators Research 24, no. 1 (1991): 1-34.

32

measurement is desired—for example, he may be asked to define the ―top‖ and

―bottom,‖ the good and ―bad,‖ the ―best‖ and ―worst.‖ This self-defined continuum is

then used as our measuring device.

While the Self-Anchoring Striving Scale technique can be used on a wide

variety of problems, it was utilized in this study as a means of discovering the

spectrum of values a person is preoccupied or concerned with and by means of which

he evaluates his own life. He describes as the top anchoring point his wishes and

hopes as he personally conceives them and the realization of which would constitute

for him the best possible life. At the other extreme, he describes the worries and

fears, the preoccupations and frustrations, embodied in his conception of the worst

possible life he could imagine. Then utilizing a nonverbal ladder device [showing a

scale from 0 to 10], symbolic of ―the ladder of life,‖ he is asked where he thinks he

stands on the ladder today, with the top being the best life as he has defined it, the

bottom the worst life as he defined it.

The concept of the ladder to gauge an individual level of happiness has been utilized by

many economic studies and well-being indexes.

The National Data Program for the Sciences (NORC) at the University of Chicago

has provided the most extensive data of happiness levels in the United States. The

NORC has been conducting the General Social Survey (GSS) since 1972 providing the

most longitudinal data for happiness. The GSS assesses well-being through the direct

question of, ―Taken all together, how would you say things are these days--would you

say that you are very happy, pretty happy, or not too happy?‖ The GSS, although a

simpler and smaller scale, provides the same responses as the more complex Cantril

measures. Easterlin (1974) used the data from the GSS applying a 1 to 3 scale to the

question; 1 being unhappy and 3 being the happiest. The idea is the same, subjective

well-being is provided by the individual in their context of happiness. Although the

procedures differ in the Gallup poll and Cantril approaches, the concept of happiness

underlying them is essentially the same. Reliance is placed on the subjective evaluation

of the respondent—in effect, each individual is considered to be the best judge of his own

feelings. He is seen as having a frame of reference that defines for him the range of well-

being most applicable to himself.

33

Recently (2008), Gallup and Healthway collaborated to develop the all-embracing

well-being index for the United States. The Gallup-Healthway Well-Being Index

(GHWBI) measures six domains of well-being. Each domain is determined based on

scientific study of responses to the survey questions and include life evaluation,

emotional health, physical health, healthy behavior, work environment, and basic access.

The life evaluation domain is based on the ladder scale developed by Cantril (1965).

Emotional health index measures respondents‘ daily experiences with feelings of stress,

laughter, sadness, anger etc. Physical health measures the person‘s health by levels of

sickness, obesity, energy, etc. Healthy behavior measures lifestyle choices like smoking

tobacco or drinking alcohol. Work environment refers to employment status and job

satisfaction. Basic access measures the ability of the individual to attain basic needs like

water and food. Although all these domains arguably should be acknowledged in an

index for well-being, this thesis will focus on life satisfaction as the sole judge of

happiness.

The surveys conducted through the GSS, Self Anchoring Scale, or the GHWBI

have been found effective in measuring well-being and happiness. Well-being indexes

that are rational and have an empirical basis for measuring perceived quality of life, at

any of several different levels of broadness, generality, and abstraction have been found

to be accurate. Substantial data has been collected from representative national samples

which can provide statistical baselines for any of a wide variety of possible quality-of-life

measures which may ultimately seem most appropriate (Andrews and Withey 1973,

p.24). The accuracy of studies that attempt to assess perceived life quality has been

revisited again and again. Andrews and Withy embarked on a major effort to develop

34

measures of perceived life quality. The effort is part of a larger movement within the

United States and a number of other countries to develop an expanded set of social

indicators which can be monitored over time. Studies and surveys on well-being have

continually encouraged the idea of looking at social indicators like income to understand

outside factors in the assessment of well-being.

The data that will be used for the first regression will come from the GSS survey

conducted in 2006. The data will use the answers from the respondents for the questions

on general happiness, income, general health, and the respondent‘s education level (see

survey questions in appendix). The data for the second regression will come from surveys

conducted by the GSS from 1972 to 2008 (missing years: 1979, 1981,1992, 1995, 1997,

1999, 2001, 2003, 2005. 2007). To account for income real GDP per capita for the

United States will be used for each year corresponding with the data accumulated from

the GSS on happiness. The real GDP per capita was collected through the ERS

International Macroeconomic dataset.

35

CHAPTER VI

METHODOLOGY

Many studies have been conducted examining certain indicators of happiness or

well-being and comparing them with different indicators of income or wealth. A general

consensus has been reached that at a point in time those with more income are, on

average, happier than those with less. Over the life cycle however, it has been found that

those with increasing incomes show no increase in average happiness. Easterlin was the

first to assess this paradox that takes place between income and happiness for nations

under an extended period of time. The phenomenon that takes place although proven in

legitimate studies, has its critics and has not been accepted into standard economic

theory. The regressions ran in this study provide an additional examination of the

paradox for the United States specifically. By examining the relationship with different

data and different approaches we can discover if studying this relationship can provide

the theory of economics with valuable insights.

The first hypothesis predicts there will be a positive statistically significant

relationship between income and happiness. The hypothesis expects that as you climb

from the lower income levels to higher income levels there will be a significant

difference in the average mean happiness level. The data studied in the first regression

examines data strictly from the year 2006 and the hypothesis is in concurrence with

studies examining the point in time relationship. The regression being run on data from

2006 will provide the most recent research done on the relationship for the United States.

36

The data studied from 1972 to 2008 also offers the most recent evaluation of the relative

income theory by using data from 2008. The average mean happiness is predicted to also

level out and not increase past the income of $75,000. Meaning the coefficient of the

highest income bracket ($110,000 and above) is not expected to be greater than the

coefficient of the preceding income bracket ($75,000-109,999). We expect the happiness

levels to reach threshold due to the assumption of diminishing marginal utility of income.

The theory of marginal utility describes how the first unit of income yields more than the

second and subsequent units. A plethora of research has been conducted analyzing the

relationship between income and happiness at a point in time. There is a general

agreement in the field of happiness that concurs with the hypothesis. Although the

hypothesis is generally accepted the results of the first regression are necessary to

conduct the second regression.

The second hypothesis predicts that there will be a statistically significant

relationship between the real GDP per capita and the average happiness levels over the

period of 1972 to 2008. The regression will use the happiness ratings from the GSS and

the real GDP per capita from 1972 to 2008. The hypothesis is similar to the first

hypothesis in that it expects the happiness levels to increase with increases in income. As

United State‘s real GDP per capita grows from the year 1972 through 2008 we expect the

average happiness level to rise proportionally. We expect this hypothesis due to many of

the same reasons for the expectations of the first regression. Even as time passes if an

individual‘s income increases then they have an ability to satisfy their basic material

needs and achieve financial security.

37

The research done in economics on the relationship between income and

happiness over a period of time or life cycle is not in concurrence with the hypothesis.

Many studies have found a paradox between the two relationships, happiness and income

at a point in time and over a longer period of time. The hypothesis breaks away from

relevant research but is aligned with standard economic theory. Standard economic

theory contradicts relevant research and assumes that economic growth is fundamental in

achieving higher levels of well-being.

There is an ongoing debate as to the success of economic growth in increasing

general well-being. The empirical analysis conducted here employs a different approach

using different datasets to examine the relationship. Many of the critics of happiness

research argue that studies using happiness indexes are inaccurate and cannot be used

authoritatively. The data and the analysis here refute the claim that happiness measures

are inaccurate and therefore inconsequential. Happiness has been found to have

important implications in previous economic studies. This thesis maintains the value of

happiness ratings and seeks to prove their value by establishing their effectiveness.

Using the program STATA 11, a simple linear regression analyzed the data

accumulated from the GSS including happiness ratings, income levels, health ratings, and

education levels. The second regression analyzed the years between 1972 and 2008

conducted on data from the GSS on happiness ratings and from the ERB on the United

State‘s real GDP per capita.

Using the data from 2006 of the GSS certain income levels are grouped together

for a more clear representation of the data. The income groups are grouped into seven

categories: less than $10,000; $10 -19,999; $20-29,999; $30-49,999; 50-74,999; $75-

38

110,000; and $110,000 and above. The respondents based their happiness on scale of not

too happy=0, pretty happy = 2, and very happy = 4. The average mean happiness is

calculated for each income status. The following table reports the distribution of the

happiness ratings for each income level:

TABLE 6.1

DISTRIBUTION OF POPULATION BY HAPPINESS AT VARIOUS LEVELS OF

INCOME, UNITED STATES, 2006

Total Household

income (1996

dollars)

Mean

Happiness

Rating*

Very

happy

Pretty

happy

Not too

happy

(Number of

cases)

All income groups

Less than 10,000

10-19,999

20-29,999

30-49,999

50-74,99

75-109,999

110,000 and above

2.355

1.754

2.092

2.123

2.223

2.534

2.772

2.844

37.822

43

86

69

131

170

140

144

208.143

128

192

190

355

262

180

150

111.857

73

70

50

69

43

17

14

2576

244

348

309

555

475

337

308

Source: National Opinion Research Center (1996). ―Don‘t know‖ and ―no answer‖ responses omitted.

*Based on score of ‗very happy‘ = 4, ‗pretty happy‘ = 2, ‗not too happy‘ = 0.

The regression uses happiness as the dependent variable. The independent

variables are income, health, and education. The respondents for the GSS regarding

income were only required to respond in sets rather than providing their actual data

requiring the use of dummy variables. There are eight dummy variables with 7

representing each of the different income brackets and the eighth dummy variable

representing all respondents that did not answer the question.

For the health variable respondents reported their general health on a scale of

excellent = 1, good = 2, fair = 3, poor =4. The variable of education required respondents

to report the highest level of education they received in terms of years from a scale of 1 to

39

20 (1 being 1 year of school completed and 20 being 20 years completed). These two

variables were incorporated into the regression to provide context to the dependent

variable of happiness. The well-being function used in the regression appears as follows:

H = income1_8 + income1_1 + income1_3 + income1_4 + income1_5 +

income1_6 + income1_2 + health + educ

H represents the average mean of the respondent‘s self-reported happiness. The dummy

variables are represented as follows; income1_8 = Less than $10,000; income1_1 = $10-

19,999; income1_3 = $20-29,999; income1_4 = $30-49,999; income1_5 = $50-74,999;

income1_6 = $75-109,999; income1_2 = $110,000 and above. The variable of health =

respondents general health, educ = highest level of education respondent achieved.

A heteroskedasticity test of the regression shows a chi-square of 9.71. The

problem of heteroskedasticity was fixed by implementing robust standard error.

TABLE 6.2

REGRESSION WITH HAPPINESS AS DEPENDENT VARIABLE

Linear Regression

Number of observations 1994

F ( 9, 1984) 24.59

Prob > F 0.0000

R-Squared 0.1029

Root MSE 1.12248

Happiness Coefficient t-statistic

Less than $10,000 -.518 -0.380

$10-19,999 -.249 -2.19

$20-29,999 -.248 -2.17

$30-49,999 -.241 -2.43

$50-74,999 .058 0.57

$75-109,999 .247 1.36

$110 and above .284 2.44

health -.374 -10.57

education -.00098 -0.11

_constant 3.230 19.62

40

The real GDP per capita was used as a measure to represent average income for

the years of 1972 to 2008. The average mean happiness was accumulated through the

GSS by finding the average mean happiness for each year using the same scale used in

the first regression of very happy = 4, pretty happy = 2 and not too happy = 0. The

following chart presents the real GDP per capita, average man happiness for each of the

following years:

TABLE 6.3

HAPPINESS AND REAL GDP PER CAPITA, UNITED STATES, 1972 -2008

Year

Real GDP per Capita

(2005 dollars)

Average Mean

Happiness

First Difference (2005

Dollars

1972 22,104 2.275

1973 23,155 2.456 1051

1974 22,827 2.496 -328

1975 22,563 2.396 -264

1976 23,536 2.431 973

1977 24,376 2.458 973

1978 25,462 2.496 1086

1980 25,621 2.412 159

1982 25,259 2.321 -362

1983 26,163 2.367 904

1984 27,798 2.436 1635

1985 28,690 2.345 892

1986 29,416 2.418 726

1987 30,139 2.313 723

1988 31,101 2.493 962

1989 31,899 2.459 798

1990 32,135 2.489 236

1991 31,657 2.402 -478

1993 32,713 2.410 1056

1994 33,618 2.331 905

1996 34,906 2.366 1288

1998 37,112 2.393 2206

2000 39,187 2.423 2075

2002 40,050 2.358 863

2004 41,137 2.358 1087

2006 42,725 2.355 1588

2008 43,250 2.281 525

Source for real GDP per capita: ERS International Macroeconomic Dataset

41

A simple time-regression using average mean happiness as the dependent

variable, the independent variables were real GDP per capita and the year for each

average mean happiness level. The equation for the time-series regression appears as

follows:

H = gdppercapita + year

The following chart displays the results of the regression.

TABLE 6.4

REGRESSION OF HAPPINESS AND REAL GDP PER CAPITA FROM, UNITED

STATES, 1972 – 2008

Time-series regression

Number of observations 27

F ( 9, 1984) 2.66

Prob > F 0.0908

R-Squared 0.1812

Root MSE 0.06055

Average mean happiness coefficient t-statistic

real GDP per capita 0.0000191 1.31

year 0.00884 -1.56

constant 17.250 1.71

Due to a very low R-square, very low coefficients and lack of significance a first

difference variable was incorporated into the regression. The first difference may

provide a better representation of the significance between the difference in real GDP per

capita and the happiness levels from year to year. The following chart displays the results

for the first difference regression:

42

TABLE 6.5

REGRESSION OF HAPPINESS AND REAL GDP PER CAPITA WITH FIRST

DIFFERENCE

Time-series regression

Number of observations 26

F ( 9, 1984) 4.22

Prob > F 0.0275

R-Squared 0.2048

Root MSE 0.05406

Average mean happiness coefficient t-statistic

real GDP per capita -5.43e-06 -2.90

first difference 0.000023 1.31

constant 2.552 47.03

43

CHAPTER VII

RESULTS

The data shown in Table 1 between income and happiness reveals the positive

relationship between the two variables following the predictions made in the hypothesis.

The lowest income bracket has the lowest average mean happiness and the income

increases consecutively to a higher income bracket the average mean happiness increases.

This does not establish causality or significance but offers an intriguing view of the two

variables. The results of the regression do not follow the hypothesis in regards to the

theory of diminishing marginal utility.

The results for the regression conducted using happiness as a dependent variable

and the income, health and education levels as independent variables are shown in Table

2. The coefficients and t-statistics of the regression indicate that being a respondent in

the four lowest income brackets or having a household income lower than $50,000 has a

negative relationship with happiness. The lowest income bracket ($10,000 or less) has

the highest significance of all the income dummy variables, -3.80, and the highest

coefficient of -.518. This indicates that respondents with the lowest income bracket have

the highest dependency upon income to achieve happiness.

The next three income brackets ($10,000 to 49,000) have very similar coefficients

and t-statistics with one another. All three variables are statistically significant and have

negative coefficients. The coefficients indicate that the respondents for these three

income levels share similar characteristics in relation to income and happiness.

44

Respondents in each of these income brackets are not as unhappy as the respondents from

the lowest income bracket but still maintain a negative relationship between the

dependent variable of happiness and the independent variable of income. The following

income level ($50,000 to 74,999) lacks significance and has the lowest coefficient of all

the independent variables besides education. The income level of $75,000 to 109,999

also lacks significance but still falls just below achieving significance and has a much

higher coefficient. The highest income level ($110,000 and above) has a relatively high

coefficient and a high significance with a t-statistic of 2.84.

The variables of health and education were included to provide context for the

dependent variable, happiness. Health, as expected achieved a high coefficient of -.374

and was very significant with a t-statistic of -10.57. The high coefficient and high t-

statistic are to be expected; the reason that they are negative is due to the input of data.

The rating system ranked the highest level of health at 1 with the lowest at 4. The

variable of education had a very low coefficient and lacked significance with a t-statistic

of -.11. Education was expected to have a positive relationship with happiness. The

results of the regression suggest that there is not a relationship between education and

happiness.

The reason that the lower income brackets were so dependent upon income for

happiness can be explained by the fact that these income brackets cannot achieve enough

money to satisfy their financial security. The income bracket of $110,000 and above is

statistically significant reinforcing the conclusion that higher income levels produce

higher levels of happiness. The highest income bracket also had a higher coefficient than

the preceding income bracket rejecting the predicted hypothesis. The results do not

45

follow the law of diminishing marginal utility that expected the coefficients of the two

brackets to show no significant difference.

There are certain problems due to the subjective nature of the happiness level as

well as the relatively small sample pool. In the lowest income bracket there are

respondents that describe themselves as very happy and respondents in the highest

income bracket that describe themselves as not too happy. Certain individuals do no nee

high levels of income to be happy. But the data shows that for most people a higher

income leads to higher level of happiness.

Secondly, data was accumulated from the GSS for the years of 1972 to 2008 for

the variable happiness and an average mean happiness was calculated for each year. A

more accurate depiction of happiness over time would have required that the same

respondents were surveyed year after year. Unfortunately, the GSS does not survey the

same respondents for each year requiring an average mean to be calculated for each year.

To account for income, instead of using the incomes of each respondent, data was

accumulated for each year for the real Gross Domestic Product per capita. The real GDP

is a more accurate measure of the average income of a United State‘s citizen than

averaging the income of each of the respondents.

The data presented in Table 3 shows a lack of a relationship between the income

(real GDP per capita) and the happiness levels. The real GDP per capita nearly doubles

from the year 1972 to 2008 but the average mean happiness level merely increases from

2.275 to 2.281. A discrepancy is shown between the clear relationship of income and

happiness during 2006 and a lack of any relationship across the time span of 1972 to

2008.

46

A time series regression was conducted on the real GDP per capita and the

average mean happiness. The results of the regression are displayed in Table 5. The real

GDP per capita has a very low coefficient, which is to be expected, while the t-statistic

lacks significance. From 1972 to 2008 there is no statistically significant relationship

between income and happiness rejecting the hypothesis predicted. To try and account for

differences between years a regression was conducted including the first difference for

each year of real GDP per capita.

The data displayed in Table 5 reflects the results of running the regression for

each year after applying a first difference. The first difference was used to determine if

there was a significant relationship between the changes in the real GDP per capita for

each year. Surprisingly, there was a significant relationship with a t-statistic of -2.90.

Although it is significant, the fact that the t-statistic is negative rejects the null hypothesis

suggesting the opposite of what was expected.

In general, the change in the real GDP per capita should result in a positive t-

statistic indicating that with a one unit increase in the change in the real GDP per capita

would mean a unit increase in the average mean happiness level should increase by one

unit as well. The coefficient was also practically negligible, -5.43e-06. Although the

coefficient is significant the rate at which it is significant is so small that the significance

loses merit. By multiplying the real GDP per capita coefficient with real GDP per capita

to provide the incremental difference in the happiness level we can achieve a better idea

of scope:

-5.43e-06 x $22,104 = 0.120

47

Multiplying the coefficient of the income variable with the real GDP per capita of 1972

results in a small number but is significant to the average mean happiness level. This is

explained not by the actual significance in the change in the happiness level but by the

constant change of the real GDP per capita. The significance of the t-statistic is

determined significant but not clinical in that the significance does not reflect the

relationship between income and happiness accurately.

The discrepancy found between happiness over time and a point in time can be

explained by a number of different reasons. Happiness is affected by many different

variables; the regression only accounts for one of those variables, income. A more

detailed approach that incorporates variables and understands year-by-year fluctuations is

necessary to understand why the average mean happiness is lower in some years than in

others. An argument can be made to justify the lack of significance against the measure

of happiness. The measure of happiness proved to be valid for the regression run in

2006; why would the measure not be valid over the almost forty years time period? This

may be due to changed preferences of the respondents. A deeper analysis of how happy

people consider themselves each year is necessary to account for the subjective nature of

happiness. The culture and the people surveyed changed dramatically from 1972 to

2008 and could explain fluctuations of the happiness levels.

Although there are many different variables that need to be accounted for using

happiness as a dependent variable, the data and the results are still useful and compelling.

The comparison between average mean happiness and real GDP per capita presents a

rather stark difference to the comparison between income and happiness just in 2006.

This discrepancy is consistent with relevant time-series economic research done on time-

48

series and cross-sectional data from Europe and countries in Asia. In almost every study

done there is a significant positive bivariate relationship between happiness and income.

The question that remains is as GDP grows substantially in countries why is the level of

happiness not growing?

One reason that has achieved popularity is the idea of relative income. People

judge their income relative to the incomes of people around them. This would explain

the phenomenon that as GDP is doubling; people‘s levels of happiness are not. No matter

how much money you receive it is dependent on how much money people receive around

you. As everyone‘s income levels grew there is no change in their level of happiness

even though they have more wealth and material things. This concept has serious policy

implications; do we really need to continue to make policies that attempt to accelerate our

growth? Is an increase in GDP per capita an actual measure of well-being or strictly a

measure of the amount of good/services produced within a country? The next chapter

will provide a more detailed explanation behind the mystery of the paradox of happiness.

49

CHAPTER VIII

CONCLUSION

―We must acquire a life style which has at its goal maximum freedom and happiness for the

individual, not a maximum Gross National Product.‖

Paul Erlich

By analyzing human well-being through the relationship between income and

happiness we can refine our judgment of social well-being while also opening the debate

to basic and accepted principles of economics. Economic theory is founded on the

objective of economic growth, efficient allocation and fair distribution of resources; even

though this market-based neo-classical ideology is effective it is limited by certain

assumptions. Economic growth serves as an ideology that promises financial security

and a higher level of well-being. The body of research reviewed here examines the

successfulness of economic growth but also raises serious questions with respect to the

use of GDP as a measure of our welfare, and the limiting and inhuman role assigned to

individuals in economic models. Recognizing certain shortcomings in economic theory is

critical for the United States and the way we utilize the study of economics.

Examining the relationship between respondents‘ measure of their own happiness

and their household income has established that those with higher incomes are for the

most part happier. Then by analyzing respondents‘ measures of their own happiness over

the past 40 years against the United States real GDP per capita we can observe that higher

income is not tied to greater happiness at a macro-level. Economists and government

officials both use economics to construct policies that increase our GDP on the basis that

50

this will increase our national well-being but a rigid application of this economic theory

may be erroneous.

A strong relationship between income and happiness is to be expected. Results

from the regression conducted on data from 2006 reveal that individuals with higher

incomes are generally happier. Although many do not like to believe that money buys

happiness, the reasons for this to occur may be rather simple. Earning enough money is

necessary to provide basic human needs like food and shelter. Beyond our basic needs

money can provide material things that increase our happiness. Earning a higher income

can also provide people with a feeling of status and superiority over people around them.

Interesting, the law of diminishing marginal utility of income was not evident in the

results. One hypothesis to explain this absence is that once people can satisfy their basic

human needs and free of the stress and discomfort of struggling to survive they are free to

be happy. Therefore the correlation we observe between income and happiness may be

driven by the impact on personal well-being of reaching a threshold survival-enabling

income, which allows individuals to experience happiness regardless of the incremental

monetary value they obtain from income past this threshold. Given this hypothesis we

would expect money, or income, past a certain point, is in fact immaterial to happiness.

The strong relationship found between happiness and income in 2006 is

incongruent with the non-existent relationship found between the two variables between

the years 1972 and 2008. The results found that there was a statistically significant

relationship between income and happiness in 2006 and a lack of significance for the

years 1972 to 2008. The apparent paradox that occurs between the two variables at a

point in time and the two variables over time is important and disconcerting. The results

51

suggest that our tremendous growth in GDP does not in fact improve our subjective well-

being. These findings are congruent with findings in past studies that analyze different

indicators for income and happiness throughout the United States, across Europe, and

into Asia.

Determining exactly why the paradox occurs between happiness and income at a

point in time and over time is difficult. There are many theories attempting to explain the

puzzling anomaly. A prominent and accepted theory of relative income suggests that

utility depends on income relative to some reference or comparison income of individuals

or households in similar economic circumstances as your own. Samuel Johnson was

accurate when he declared, ―Life is a progress from want to want, not from enjoyment to

enjoyment‖.1 This would explain that as households receive higher incomes they are not

becoming happier.

The theory of relative income suggests that because of our human nature as we

become richer we do not become happier. The theory encourages questions about both

economic science and economic policy for blind obeisance to aggregate material

―progress,‖ and for neglect of its costly side effects. Disillusioned critics indict economic

growth making the claim that it distorts national priorities, worsens the distribution of

income, and irreparably damages the environment.2 A critical assumption of economic

growth disregarding its negative implications stated above is an increase in economic

well-being. Economic growth is charged by the notion that it sustains our market,

1 Easterlin, "Income and happiness: Towards a unified theory," The Economic Journal (2001):

465-484.

2 William D. Nordhaus and James Tobin,‖Is Growth Obsolete?‖ The Measurement of Economic

and Social Performance (1973): 510-532.

52

increases the wealth, and ultimately promotes our well-being. But what if this

assumption is wrong and that economic growth does not truly have the desired effects?

Ideally economic growth provides more money, more jobs and spurs

technological advancement. The neoclassical model institutes measures that advance

technological knowledge and measures that increase the share of potential output devoted

to accumulation of physical or human capital. Capitalism is essential to advancing but

there needs to be a balance between the capitalistic drive to advance in science and

technology, and using sustainable practices and accounting for our social well-being.

This thesis intends to raise questions that examine the effect of economic growth on our

happiness as well as the impact it has on our environment. The idea is to put value on

aspects of our economy that do not have price tags but are invaluable like open space and

air, our oceans and forests.

How can we account for our natural resources and well-being while sustaining our

economic growth? Governments should strive to incorporate more personal and socially

conscientious measures within their policies. Economic growth is not the only avenue to

increased well-being; we have to understand how to increase our well-being through

sustainable economic development.

Along with criticisms of economic growth as the sole objective, economists have

raised doubts to the accuracy of Gross Domestic Product as measure of economic

welfare. An obvious shortcoming is that it is an index of production rather than

consumption, while the goal of economic activity is consumption. Nordhaus and Tobin

constructed an alternative to GDP and propose a ―measure of economic welfare‖ (MEW)

in an attempt to account for certain discrepancies that occur between the GDP and

53

economic welfare.3 Their adjustments to GDP fall into three major categories:

reclassification of GDP expenditures as consumption, investment, and intermediate

products; imputation for the services of consumer capital, for leisure, and for the product

of household work; correction for some of the disadvantages of urbanization. Although

the MEW still does not provide a measure of happiness, it is arguably a better measure

than the GDP or GNP.

The study of well-being through the lens of economics hopes to make progress

not only through the application of utility but in the limiting and simple form of that

economics applies to individuals in models of behavior. Departing from the narrow

application of utility instituted during the Ordinalist revolution, utility can offer more

than insights into the preferences of a consumer and can allow us to examine the relation

of a human being to a good or service. The historical use of utility in standard economics

did not allow for the measurement of well-being or happiness because of its subjective

nature. The results discovered in this thesis demonstrate how the narrow application of

utility can be expanded and provide useful insights into the interaction between the study

of economics and human nature. The expansive structure of economics allows

economists to break away from the traditional economic studies and use empirical

evidence to measure more subjective matters like happiness.

Beyond the term utility, the real limiting agent of economics is found in an

excessively restrictive portrait of human nature and human motivation; namely in

individualistic anthropology, which states that behind economic action there is an

individual who has no other determination than that of homo oeconomicus (the

3 Ibid.

54

assumption that an individual will only pursue his selfish economic gain).4 More

specifically, the ineptitude of conventional economic theory to adequately address the

happiness issue is to be attributed to a philosophical stance for which individuals are

isolated in an atomistic theoretical construct.5 As a result, models are generated where

what is analyzed is essentially selfish and egotistical behavior: the understanding of

mental states of the other is simply not considered at all, nor are the sympathy and

empathy given a proper role in the explanation of economic decisions in interactive

contexts.

Emma Rothschild reports from the 1770s regarding how ―economic life was

intertwined, in these turbulent times, with the life of politics and the life of the mind.

Economic thought was intertwined with political, philosophical, and religious reflection.

The life of cold and rational reflection was intertwined with the life of sentiment and

imagination.‖6 Perhaps we need to refer back to these times and understand that

economics is more effective and accurate when it is applied using tools and knowledge

gained from other disciplines.

In applying economics to the investigation of happiness, economics can utilize a

more holistic approach that incorporates human nature into models of human behavior.

This radical notion is simple and logical—treat humans like humans. Incorporating

findings of the human psyche from psychology, sociology, and politics into economic

models of behavior creates a more valid and realistic model. Studying happiness through

4 Luigino Bruni and Pier Luigi Porta, Economics and happiness: framing the analysis, (Oxford;

New York: Oxford University Press, 2005), 1-366.

5 Bruni and Porta, 303.

6 Emma Rothschild, Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment,

(Cambridge: Havard University Press, 2002), 1-366.

55

economics should allow governments to incorporate a more mindful approach to

constructing public policy. All academics strive to progress and make advancements in

their particular study. Important in progression is challenging fundamental accepted

truths. The research here strives to challenge the accepted notion that money buys

happiness and that economic growth promotes the betterment of society. The ultimate

goal is to prompt a debate that questions the anthropological foundations of economic

discourse and to make the inquiry into not simply the wealth of nations but rather the

happiness of nations.

56

CHAPTER IX

APPENDIX

Survey:

Questions from the General Social Survey for each variable used in the regression:

HAPPY: Categorical (Single) Taken all together, how would you say things are these days--would you say that you are very happy, {response to happytxt1}, or not too happy? Categories: {very_happy} Very happy {pretty_happy} {response to happytxt2} {not_too_happy} Not too happy {dontknow} DON'T KNOW {refused} REFUSED

Variable income06 : TOTAL FAMILY INCOME

Literal Question

In which of these groups did your total family income, from all sources, fall last year –

2005 – before taxes, that is. Just tell me the letter.

Categories: {a} A. UNDER $1,000 {b} B. $1,000 to 2,999 {c} C. $3,000 to 3,999 {d} D. $4,000 to 4,999 {e} E. $5,000 to 5,999 {f} F. $6,000 to 6,999 {g} G. $7,000 to 7,999 {h} H. $8,000 to 9,999 {i} I. $10,000 to 12,499 {j} J. $12,500 to 14,999 {k} K. $15,000 to 17,499 {l} L. $17,500 to 19,999 {m} M. $20,000 to 22,499 {n} N. $22,500 to 24,999 {o} O. $25,000 to 29,999 {p} P. $30,000 to 34,999 {q} Q. $35,000 to 39,999 {r} R. $40,000 to 49,999 {s} S. $50,000 to 59,999 {t} T. $60,000 to 74,999

57

{u} U. $75,000 to $89,999 {v} V. $90,000 to $109,999 {w} W. $110,000 to $129,999 {x} X. $130,000 to $149,999 {y} Y. $150,000 or over {dontknow} DON'T KNOW {refused} REFUSED HEALTH: Categorical (Single) Would you say your own health, in general, is excellent, good, fair, or poor? Categories: {excellent} Excellent {good} Good {fair} Fair {poor} Poor {dontknow} DON'T KNOW {refused} REFUSED Variable educ : HIGHEST YEAR OF SCHOOL COMPLETED

Literal Question

Now just a few more background questions.

15 - 22. ASK ALL PARTS OF QUESTION ABOUT RESPONDENT BEFORE GOING ON TO ASK

ABOUT R'S FATHER; AND THEN R'S MOTHER; THEN R'S SPOUSE, IF R IS CURRENTLY

MARRIED.

A. What is the highest grade in elementary school or high school that (you/your father/ your mother/your

[husband/wife]) finished and got credit for?

CODE EXACT GRADE.

B. IF FINISHED 9th-12th GRADE OR DK*:

Did (you/he/she) ever get a high school diploma or a GED certificate? [SEE D BELOW.]

C. Did (you/he/she) complete one or more years of college for credit--not including schooling such as

business college, technical or vocational school?

IF YES: How many years did (you/he/she) complete?

58

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