Economics of Happiness

What does it take to be happy? In our pursuit of wealth and success, this question is often overlooked. Happiness is also ignored in traditional economics. There is a recent trend, however, to base the nation’s well-being not on GDP or GNP, but on its Gross National Happiness (GNH). While this may seem unusual, there are a range of economists suggesting that happiness is already an economic indicator and that it can be measured.

This Friday, Professor Kimball, as one of these trend-setting economists from the University of Michigan, gave a lecture on his research how we measure happiness from an economist's perspective. (left: Professor Kimball)

How we value happiness? How can you say " I am happier than you." or " today, I feel happier than yesterday." Professor Kimball defines happiness in an interesting yet intuitive way--we measure happiness by how much we can sacrifice for that, i.e, your preference for happiness. By this definition, we can know what people care about, and their utility on that.

But Professor Kimball also pointed that happiness is not exactly equal to utility. Historically, people's life standard is much better than that 30 years ago. In terms of utility, we can say, people are better off. However, the survey conducted by the UM Survey Center that people still face lots of emotion problems, burdens which make them not happy. Another example is cited from immigration case. Many Mexicans want to go to America. Annually, lots of Mexicans immigrate to this country legally or illegally. Those employed immigrations can earn more money than they could in Mexico. Their life standards get promoted. However, on the other hand, their social status is lower than that in their own country--discrimination, loneliness, homesickness, etc. make them not really happy. So, we cannot simply equate happiness and utility.

Professor Kimball also talked about the short-term happiness and long-term happiness. Good news or bad news usually affect people's short-term feelings. When you get promoted by your boss, or your daughter get administration letter from Harvard University, you must be very happy, and even would have party to celebrate that. But gradually your happiness will go back to long-term standards. The point is that, your short-term happiness is more sensitive and long-term happiness is much more stable, based on personality.

The beauty of this research is that, we can apply this theory to serious business. For example, next time, the Universal can value how much happiness their movies can bring to audience before they start to shot the films. Steven Jobs can estimate how much happiness Beyonce's songs can create before he decides to put it on iTune store. So there is a lots of potential application on this theory, isn't it?