Happiness Flashcards
What is the Easterlin paradox?
Economic growth doesn’t seem to be making us happier. Real GDP growth positive while average happiness is flat.
One explanation for easterlin paradox
We care about relative income not absolute. If all people getting richer, relative incomes unchanged = happiness unchanged. “Keeping up with the Joneses”
If a happiness equation gives t statistics in brackets, what number is the minimum for it to be statistically significant?
T > 1.96/2
If a happiness equation gives standard error in brackets, what number is the max for it to be statistically significant?
Standard error should be < 1/2
What is the relation between age and happiness?
U shaped - declines, Plateaus at 40 years, then increases
2 reasons why we should be interested in the economics of happiness
- To see if society is heading in a sensible direction - “the welfare of a nation can scarcely be inferred from a measure of national income” Kuznet
- Human beings have feelings which traditional Econ doesn’t care about
Give a utility function that could explain easterlin paradox
U = U(Y, Y*)
My utility depends on my income & others’ incomes
Linear regression =
Provided statistical information about the relationship between two quantitative variables
What is the coefficient of determination?
R^2 = the percentage of variance in the dependent variable that is accounted by variability in the independent variable. Between 0% and 100%.
Dependent vs independent variable - which axes?
Dependent = vertical (Y) axis Independent = horizontal (X) axis
Residuals =
The difference between the predicted value using the regression line & actual value (which may lie above or below regression line)
What is human arbitrage?
Humans migrate to happy places = happiness levels are similar across geographical areas.
Effect of children on happiness
Negative effect on average
What are fear variables? Impact on happiness?
When unemployment & crime rise in a country, people feel less happy out of fear even if their own situation is unchanged. Realisable welfare state or police = reduced fear variables = happiness even if we never use these services.
What 2 processes go on inside a person?
- Human feelings
2. Human reporting - how we report the feelings we’ve had
Write a function for the reported happiness of income
R(Y) = r(H(y))
R = reported happiness H = true happiness
Find the 1st & 2nd order derivatives of the reported happiness of income function. Implications for diminishing MU of income?
R’(Y) = r’(h(Y)) h’(Y)
R”(Y) = r”(h(Y))h’(Y) + r’(h(Y))h”(Y)
This shows the curvature of the reported happiness curve. R”(Y) < 0 doesn’t prove diminishing MU of income, as we need h”(Y) < 0
How could neuroscience provide an objective measure of happiness?
Positive feelings = brain activity in the LHS of the pre-frontal cortex.
Negative feelings = brain activity in RHS of brain.
What exogenous variable can be used to see the impact of income on happiness?
Lottery win - see impact of sudden & unexpected rise in income without having to artificially create the experiment.
What is the most at risk age for suicide?
45
Describe the life cycle pattern of happiness
U shaped - low point reached during mid-life crisis (45)
What is happiness adaption? What is a fancier word for it?
After a bad event e.g. Loss of loved one, happiness declines sharply. But it recovers after a few years and returns to pre event level.
Hedonic adaptation
Relation between happiness & marriage. Why?
N shaped - marry = happiness initially rises, peaks and then falls, but remains above pre marriage level.
Hedonic adaptation - novelty wears off
Do we see hedonic adaptation with unemployment? Why/why not?
NO. Happiness falls before the event and also after. Loss of income, Low self esteem, marriage breakdown etc.
Relation between happiness & divorce
Happiness low before divorce then increases after. Unsuited couples as happiness < 0 before so divorce improves happiness.
What is the nun study?
Nuns who expressed happiness when 18 years old lived longer. Happiness at at young age if claimed to predict how long you will live.
Is herding rational?
Yes - it is natural & rational for the individual, BUT it can be very dangerous for the group.
How did W.D.Hamilton explain herding in biological terms?
Rational animals care about relative safety, not absolute safety. Predators take animals from the exterior. 1 step inside is the greatest marginal safety gain.
How do most economists think of herding in contrast to the biological perspective?
Informational learning - traders copy each other because they think the other person must’ve discovered the right stock to buy.
What else explains human imitation?
Sheer keeping up desires e.g. In fashion.
What experiment did David Card carry out? What did it show about the importance of relative income?
He sent emails to half staff at uni of California so they could find out about what their colleagues earn. Those who discovered they were comparatively poorly paid were dissatisfied & some quit. The control group who didn’t receive the email but earned the same didn’t quit
3 examples of herd behaviour in stock markets
House prices before financial crisis
Dot com bubble 2000-2001
Bitcoin
Write an equation which can describe herd/imitation behaviour
U(a) + V(a - a*) - C(a)
Suppose a is buying a faster car. U(a) is direct utility from being able to travel faster. V describes indirect utility from the gap between mine and your car. C is the cost.
Using the equation U(a) + V(a - a*) - C(a), what proves herd behaviour? What leads to anti herding?
If V is concave i.e. <0, we have diminishing marginal utility of status = we get herd/imitation behaviour.
If V is convex, we get anti head behaviour. Accelerating utility from status = we do opposite to everyone else.
Take the 2nd order total derivative of the equation U(a) + V(a - a*) - C(a). What does it show?
U’(a) + V’(a - a) - C’(a) = 0
[U”(a) + V”(a - a) - C”(a)]da - [V”(a - a)]da = 0
If V” < 0 I.e. Concave = herd behaviour
If V” > 0 I.e. Convex = anti herd behaviour (care about status)
If V” > 0, how does this relate to status?
We have increasing marginal utility from status
Relation between GDP & happiness: how does cross-country comparisons and time-series data differ?
Cross country = show positive relation
Time series = show happiness is flat while GDP rising
3 macro variables affecting happiness
Low inflation
Low unemployment
Generous welfare benefits
= more happiness
Who do we compare ourselves against? Who is a*?
Peers, colleagues, family, neighbours, myself in the past, expectations
Which two countries say they do the least comparing against others?
Netherlands & Switzerland
What happened to the suicide rate after 9/11? Why?
Suicides fell after 9/11. Perhaps people reevaluated their own happiness - relatively they felt better than before since other people were suffering.
What do GHQ scores measure?
Mental strain - e.g. Having you recently felt under strain, losing confidence, feel worthless etc.
What did the Stiglitz commission report in 2009 say?
We need to shift focus from production orientated measures to broader measures of social progress. Official statistics should blend objective & subjective well being measures.
3 arguments against of easterlin paradox
- Cross country comparisons show positive relation between GDP and happiness
- Within country comparisons also show positive relation, perhaps due to relative incomes
- Reported happiness does not equal actual happiness
What is the problem when rewards depend on relative position?
It is dangerous to question whether the whole groups activity is flawed e.g. Correct dot com analysts were fired.
Connection between herding and easterlin paradox
If one persons income rises, we imitate I.e. Also spend more to keep up. So relative positions unchanged = no rise in happiness.
