Over at Club Troppo, James Farrell summarises the main elements of the economic research agenda on happiness, and some of the standard objections to it. For those who came in late, and probably didn’t imagine economists ever thought about happiness, the crucial finding is that “Cross country data shows pretty consistently that on average happiness increases with income, but at a certain point diminishing returns set in. In the developed world, people are not on average happier than they were in the 1960s.”
The data that supports this consists of surveys that ask people to rate their happiness on a scale, typically from 1 to 10. Within any given society, happiness tends to rise with all the obvious variables: income, health, family relationships and so on. But between societies, or in Western societies like Australia over time, there’s not much difference even though both income and health (life expectancy, for example) have improved pretty steadily for a long time.
I’ve long argued that these questions can’t really tell us anything, and an example given by Don Arthur gives me the chance to put it better than I’ve done before, I hope.
Suppose you wanted to establish whether children’s height increased with age, but you couldn’t measure height directly.
One way to respond to this problem would be to interview groups of children in different classes at school, and asked them the question Don suggests “On a scale of 1 to 10, how tall are you?�. My guess is that the data would look pretty much like reported data on the relationship between happiness and income.
That is, within the groups, you’d find that kids who were old relative to their classmates tended to be report higher numbers than those who were young relative to their classmates (for the obvious reason that, on average, the older ones would in fact be taller than their classmates).
But, for all groups, I suspect you’d find that the median response was something like 7. Even though average age is higher for higher classes, average reported height would not change (or not change much).
So you’d reach the conclusion that height was a subjective construct depending on relative, rather than absolute, age. If you wanted, you could establish some sort of metaphorical link between being old relative to your classmates and being “looked up to�.
But in reality, height does increase with (absolute) age and the problem is with the scaling of the question. A question of this kind can only give relative answers.
John Quiggin 
I think your example is far too simplistic — there are definitely biological components that are absolute measures. Go and someone with clinical depression and see whether they think it is relative. Alternatively, ask someone that lives close to one of the poles across the year. You’ll find there is a general trend to be less happy in Winter and more happy in Summer. These have nothing to do with relative measures.
Conrad, I agree – this objection should be directed at the other side in this debate.
The great thing about the happiness literature is that it reminds
us, through its absurdities, that there is no meaningful way to
compare the utility of different people.
The objection to happiness measures that convinces me is the homeostasis argument – that it would be evolutionarily disastrous for a species not to be dissatisfied, and that we have therefore a mechanism that reclassifies any level of happiness upward or downward until it fits into the optimum belt for vigorous activity.
Layard hasn’t read Arrow’s Theorem, and it makes me sick.
Not so long ago I read Robert Lane’s book, The Loss of Happiness in Western Market Economies. From his findings, and my own experiences, I disagree with you. You seem to be implying that people assess their level of happiness by comparing themselves to those around them. From memory, Lane was not saying that people assess their happiness level in that way. In fact, one finding that struck me was people’s inability to accurately assess the guy next door’s level of happiness. Lane cited this as one of the reasons why most people assume that the rich are happier than they are!
I would have to dip into this library book to check up on things. Are there other books on the subject that are worth reading, because it seems like an interesting area of research?
Didn’t Robert Putnam mine a lot of data to compare social capital (and happiness) between States in the USA, finding a weak and declining correlation between material wealth and happiness?
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