Wirtz, Tucker, Briggs, and Schoemann (2021) on Happiness and Social Media

Derrick Wirtz, Amanda Tucker, Chloe Briggs, and Alexander M. Schoemann, “How and Why Social Media Affect Subjective Well-Being: Multi Site Use and Social Comparison as Predictors of Change Across Time.” Journal of Happiness Studies 22:1673–1691, 2021.

• "Social" media hold the potential to increase social interaction, which tends to raise subjective well-being. But the environment in which interactions take place on social media is quite different from face-to-face encounters.

• Facebook, Twitter, and Instagram use are tracked over ten days by an experience sampling (five times per day, contacted via e-mail) method; n=77 semi-captive (college-course-taking) subjects, with 6 to 48 responses per subject. 

• The main measures: positive affect, negative affect, and life satisfaction (“I am satisfied with my life,” strongly agree through strongly disagree); loneliness is also assessed.

• More use of social media increases negative affect (that is, there's more bad feelings), but does not influence positive affect. The suggestion, then, is that social media use decreases subjective wellbeing, not by undermining positive feelings, but by increasing negative feelings. Instagram use hints (but not in a statistically significant way) at some increase in positive affect, too, and “overall” affect.

• Social comparison on social media (seeing all your friends' best moments on Facebook) also correlates with higher negative affect, while also reducing positive affect. It might be social comparison, and not social media use per se, that drives diminished subjective well-being. For instance, Facebook use is no longer significant (in altering happiness) when controlling for social comparison.

• Social media use increases loneliness, and loneliness seems to drive some social media use.

• Direct (face-to-face) interactions remain good for affect, even within this sample.

• Life satisfaction (as opposed to affect) is measured at the beginning and the end of the experiment (that is, there is no experience sampling); there are no significant effects of social media use on life satisfaction changes over the two-ish weeks.

• Facebook use (working through social comparisons) seems to lower self esteem; “passive” use of Facebook (scrolling, not posting or messaging) seems particularly problematic.

Helliwell, Huang, and Wang (2020), “Happiness and the Quality of Government"

John F. Helliwell, Haifang Huang, and Shun Wang, “Happiness and the Quality of Government.” NBER Working Paper 26840, March 2020 [pdf here]. 

• Happiness studies have become pretty standard parts of social science and governance in the last two decades. Helliwell, Huang, and Wang look at cross-country evidence concerning happiness and government quality; 150+ countries, 2005-2017, n≈1,500.  

• One common measure of subjective well-being is the Cantril ladder, where respondents are asked to imagine a ladder with eleven numbered levels, from zero on the bottom (worst possible life for the respondent) to ten on the top (best possible life for the respondent). 

• Life satisfaction (as measured, for instance, by the Cantril ladder) varies much more on a cross-country basis than do hedonic measures of happiness – and the long-run connection between public policy and life satisfaction seems more solid than the policy-emotions link. “Good government may or may not make you feel happy, but does… make you happier with your life as a whole [p. 5].” 

• Some empirical results: the quality of delivery of government services contributes to life satisfaction; the extent of democracy does not, though the quality of democracy is fairly highly correlated with life satisfaction. 

• Further, per-capita income is positively connected with life satisfaction; confidence in the government is closely connected to delivery quality, and significantly raises life satisfaction. 

• In cross-country comparisons, health care spending seems to be associated with higher life satisfaction, while military spending is associated with lower life satisfaction. 

• Conflict is bad for life satisfaction, though some of the connection arises from the harm that conflict imposes on per-capita income. 

• Well-being inequality reduces average life satisfaction; raising well-being for those with the least does not have to come at the expense of the well-being of everyone else.

Graham and MacLennan (2020) on Well-Being

Carol Graham and Sara MacLennan, “Policy Insights from the New Science of Well-Being.” Behavioral Science & Policy 6(1): 1–20, 2020; available for download here. 

• Advice for job-seekers! Inquire about autonomy, meaningful work, and a respectful atmosphere -- these will affect your well-being at work. 

• Economic growth can be accompanied by declining happiness (or declining subjective well-being (SWB)). 

• Three types of happiness measures: (1) Hedonic (or affective, or experienced); (2) Evaluative (life satisfaction); (3) Eudaimonic (meaning and purpose). These measures are far from perfectly correlated; people seem to think that evaluative measures (overall life satisfaction) are most important. 

• Four common findings: (1) Relative position matters; (2) Reference points matter; (3) Adaptation occurs, for both favorable and unfavorable events; and, (4) People can mispredict how their choices will affect their happiness, and actual choices might not reveal preferences (as measured by SWB). 

• Some additional common findings include: (4) Income is positively connected with happiness; (5) Income increases are subject to hedonic adaptation; and (6) With respect to age, happiness appears to be u-shaped. 

• SWB provides indirect evidence on the value of activities or possessions. 

• For instance, we don’t need to ask, how happy does smoking make you; nor do we just infer from your heavy smoking that it greatly contributes to your well-being. Rather, we can ask you in general how happy you are, and then learn about your activities, and see (across large numbers of people) if smoking is associated with increased happiness. 

• Maybe policy should aim to help the least happy people? 

• People in objectively poor circumstances might still have a lot of hedonic happiness – have they adapted, or lowered their expectations? 

• Beware of making happiness an official policy goal!? -- people will distrust the government's motives as well as the reliability of the data. 

• Much of your happiness is inherited. 

• Noise and commuting are hard to adapt to. 

• In health studies, SWB can be a supplement to QALYs. 

• Mental health becomes a priority when SWB is emphasized.

Hoang and Knabe (2019) on Unemployment and Happiness

Thi Truong An Hoang and Andreas Knabe, “Time Use, Unemployment, and Well-being: an Empirical Analysis Using British Time-use Data.” CESifo Working Paper No. 7581, March 2019.

• Unemployment seems to lower subjective well-being (SWB) when measured as life satisfaction – but most people find the hours spent at their jobs not to be very happy.

• Perhaps the unemployed have better days, on average, than the employed, because the unemployed can shift time away from working and commuting – that is, the unemployed might win at SWB measured as (duration-weighted) affect, while losing in the life satisfaction measure of SWB.

• If an employed person and an unemployed person are both engaged in a leisure activity like listening to music, say, the employed person is likely to receive more satisfaction from it; this reflects the "saddening effect" of unemployment, where holding activities constant, the unemployed receive less pleasure from the activities than do the employed. 

• But the unemployed are able to engage in relatively pleasurable activities more frequently than the employed: this is the "time-composition effect" of unemployment.

• In the authors' British time-use data, the employed hold the edge in life satisfaction and in "life being worthwhile" measures of SWB; work itself seems meaningful, but not particularly enjoyable.

• The unemployed sleep more, and watch tv more. They also spend more time looking for a job, and that is an activity that people do not enjoy.

• Despite the saddening effect of unemployment – when engaging in the same activity, the employed capture more happiness than do the unemployed – the unemployed capture more happiness (affect) in a typical day than do the employed, thanks to the time-composition effect. Working really is not all that happiness-inducing.

• People enjoy weekends more than weekdays, and the weekend bonus is greater for the employed.

• Incidentally, there's some US data that shows significant differences in time use between prime-age men who are not in the labor force versus the unemployed.

• All this work on posting this outline is making me sad.

Andrew Eric Clark, “Four Decades of the Economics of Happiness: Where Next?” Review of Income and Wealth 64(2): 245-269, June 2018.

• Happiness data allow answers to the questions: (1) what promotes happiness; (2) what activities do happy people undertake?; and, (3) how can we value a public project?

• One common measure of subjective well-being is the Cantril ladder, where respondents are asked to imagine a ladder with eleven numbered levels, from zero on the bottom (worst possible life for the respondent) to ten on the top (best possible life for the respondent).

• Studies of the effect of income on happiness generally indicate diminishing marginal happiness from income, so that the happiness boost from an additional $1000, say, is greater for lower income people than for higher income folks.

• Another nearly universal finding is that unemployment is negatively correlated with happiness. 

• A graph of happiness as a function of age tends to be u-shaped, though the reasons for this relationship are not well understood. 

• The black/white happiness gap in the US – whites tend to have higher subjective wellbeing (SWB) – is shrinking.

• Marriage seems good for happiness (or at least positively correlated with it), and single people who are happy are more likely to get married.

• Children are not a sure-fire happiness booster, though people who are happier are more likely to have kids down the road.

• Aggregate unemployment is worse for national SWB than is inflation, basically (in that a 1 percentage point increase in unemployment lowers SWB by more than does a 1 percentage point increase in the inflation rate) but an individual suffers less from unemployment when the aggregate unemployment rate is high

• Something (like a bigger house) that raises your happiness might undermine someone else’s

• Adaptation (the hedonic treadmill) is limited with respect to unemployment, poverty, disability, lack of job security, and (for something that raises SWB) cosmetic surgery!

• Do happy teachers lead to better student performance? (Some evidence (p. 258) says yes.)

• Happiness promotes health – and voting for incumbents.

• Affective happiness versus life satisfaction: “Would you prefer to live a good life, or to remember having lived a good life? [p. 264].”

Lowenstein (2019) Responds to Duckworth, Milkman, and Laibson (2019)

George Loewenstein, “Self-Control and Its Discontents: A Commentary on Duckworth, Milkman, and Laibson.” Psychological Science in the Public Interest 19(3): 95-100, 2019.

• Much to admire in Duckworth, Milkman, and Laibson (2019), especially the categorization of strategies to bolster self-control into situational v. cognitive and self-deployed v. other-deployed.

• Two (sort of) implicit assumptions seem to hover around the analysis, however, and I [Loewenstein] want to challenge those assumptions (assumptions which the authors themselves do not accept).

• One assumption that readers might come away with is that worsening problems such as lack of savings or obesity are brought about by self-control shortcomings, and that the strategies presented in Duckworth, Milkman, and Laibson (2019) are appropriate means to solve those problems. But inadequate self-control is not the source of (relatively recent) problems like rises in obesity and declines in savings. Rather, these problems have other, large causes, and thus, other solutions.

• A second assumption that readers might adopt is that self-control is about trying to get people to take a longer-term perspective. But many people suffer from being excessively future-minded (they are "hyperopic") -- these people need enhanced self-control to limit their future focus, to increase their current indulgence.

• The US has only become an outlier among nations with respect to undersaving and obesity in the past 40 years or so -- these problems do not reflect a new wave of a lack of self-control that swept across the land. What has changed is, for instance, a growth in income inequality and in the availability of snack foods and credit cards.

• Self-control is not about the present versus the future; it is about affect (System 1) versus more considered thinking (System 2) – this is why some people indulge insufficiently (“tightwaddism” and workaholism). (Look at the substantial investments people make in education -- do these evince present bias?) Mental accounting (like establishing an entertainment account) can help with future bias, too!

• Behavioral economics research might have a puritanical (or "Calvinist") bias.

Bell and Blanchflower (2018) on Underemployment and Happiness

David N. F. Bell and David G. Blanchflower, “The Well-Being of the Overemployed and the Underemployed and the Rise in Depression in the UK.” NBER Working Paper No. 24840, July 2018. [A later version appears in the May, 2019 issue of the Journal of Economic Behavior and Organization.]

• Unemployment is very detrimental to subjective well-being (SWB); but what about underemployment? 

• It turns out that in the UK, working fewer hours than you would like to work (at the same rate of pay) also undermines SWB – though not by as much as does poor health or unemployment.

• Overemployment also lowers well-being!

• Though unemployment in the UK has recovered from the 2008 crisis, underemployment has not recovered; earlier this year [2018], it stood at about 3% of the labor force. 

• Incomes and real wages also have not recovered, perhaps because underemployment is a sign of slack in the labor market. 

• Men are more likely than women to be underemployed, and lower wage workers are more likely to desire more hours.  

• Data are drawn from four subjective well-being questions that focus on different conceptions of life assessment: (1) satisfaction; (2) worthiness; (3) happiness; and (4) anxiety. The first three measures show improvements in well-being over the 2011-2017 period; not so for anxiety.

• The usual age effects show up, with well-being minimized at ages 50-54; things again head south after age 75 (but from global highs at 70-74). Retired people display high well-being. 

• Depression is fairly common (and much more so now than ten years ago), with 2.3% of workers being depressed and almost 10% of the unemployed being similarly situated.

Sherman and Shavit (2018) on Creative Effort at Work

Arie Sherman and Tal Shavit, “The Thrill of Creative Effort at Work: An Empirical Study on Work, Creative Effort and Well-Being.” Journal of Happiness Studies 19(7): 2049–2069, October 2018 [pdf].

• Maybe work isn’t just a means to the end of having money? Could it be that there are some non-pecuniary benefits of work? 

• Sherman and Shavit suggest that workers might invest creative effort to build up their “hedonic capital.” 

• They survey 922 Israeli adults who are salaried employees (that is, not self-employed). The idea is to see if those who invest more creative effort at work (for the purpose of making work more enjoyable) have higher subjective well-being. 

• The authors check four measures (on 0-to-10 scales) of subjective well-being: overall satisfaction; meaning and purpose; positive feelings; and, negative feelings. 

• The results indicate that creative effort (self-rated on a 1-to-7 scale) at work improves subjective well-being (SWB) when SWB is measured as life satisfaction, meaning and purpose, or positive affect. 

• Creative and intellectual work raises SWB. 

• Good health and financial satisfaction raise SWB; income does not aid meaning and purpose. 

• Having children does not raise SWB but does add meaning and purpose. 

• There are U-shaped age effects on SWB and positive affect (that is, there's a trough in midlife), but not for meaning and purpose. 

• Good health, financial satisfaction, and religiosity all seem to reduce negative affect.

Adler, Dolan, and Kavetsos (2018) on Choosing to be Happy

Matthew D. Adler, Paul Dolan, and Georgios Kavetsos, “Would You Choose to be Happy? Tradeoffs between Happiness and the Other Dimensions of Life in a Large Population Survey.” Journal of Economic Behavior & Organization 139: 60-73, July 2017 [pdf].

• Measures of subjective well-being (SWB) come in three different varieties: (1) life satisfaction; (2) happiness (positive/negative affect); and (3) meaningfulness. These varieties are termed, respectively, (1) evaluative; (2) affective; and (3) eudaimonic components of SWB. 

• Decision utility (perceived when making a choice) and experience utility (the quality of lived experience) may differ; SWB seems to be a measure of experience utility. People might purposely choose an option that they know will not maximize their SWB. People might choose options in which their health is good, for instance, even if their SWB is lower than what they could achieve with alternative options.

• Adler, Dolan, and Kavetsos present pairs of options that trade-off SWB with some other characteristic, such as health. These options are presented in “choice” (which of two possible lives would you choose) and “judgement” (which of two possible lives is better) mode. The options are presented as either brief scenarios or (less brief) vignettes; the vignettes are intended to increase the salience of the trade-off presented between SWB and some other life dimension. The three different varieties of SWB are tested separately, and each arrayed against five life characteristics: income, health, family, career, and education. n≈13,000

• The US sample indicates a slightly higher average SWB than the UK sample, though the Americans are more anxious. (And higher anxiety lowers the likelihood of choosing the high SWB option.)

• About 60% of respondents choose the high SWB option. They also seem to be drawn somewhat more to the affective component of SWB. 

• Judgement questions lead to a slightly larger pro-SWB vote than do choice questions, as does presenting the options as vignettes. 

• People possessing higher SWB are more likely to choose the high SWB option. 

• People with children and more education and people who are male are less likely to be seduced by SWB. 

• People often choose good health over high SWB; they rarely choose career success over high SWB.

[John Stuart Mill comes to mind: "Whatever is desired otherwise than as a means to some end beyond itself, and ultimately to happiness, is desired as itself a part of happiness, and is not desired for itself until it has become so." -- from Chapter 4 of Utilitarianism; and the happiness that utilitarianism invokes is the happiness of all interested parties (Chapter 2 of Utilitarianism).] 

[For a related article, see here.]

Knabe, Schöb, and Weimann (2017) on the Well-Being of Workfare Participants

Andreas Knabe, Ronnie Schöb, and Joachim Weimann, “The Subjective Well-Being of Workfare Participants: Insights from a Day Reconstruction Survey.” Applied Economics 49(13), 2017.

• Workfare involves connecting unemployment benefits to participation in (public) employment.

• Unemployment is very bad for subjective well-being; the authors want to know if workfare is, too.

• The sample (usable n=1055) is drawn from German labor force participants, some working full-time (n=366), and some in long-term unemployment. Of the long-term unemployed, some (n=341) were participating in low-paid workfare jobs.

• The authors find through interviews (conducted in 2008) using the Day Reconstruction Method that self-reported life satisfaction of the workfare population is better than that of unemployed people, but not as high as that of employed people. This life-satisfaction boost is enjoyed both by those who were coerced into workfare jobs by the threat of losing benefits and those who voluntarily entered the workfare scheme.

• The affect (day-to-day happiness) of those on workfare is more positive than that of either the unemployed or the employed: workfare participants enjoy their hours working more than "regular" employees do.

Jung and Mellers (2016) Look at US Attitudes Towards Nudges

Janice Y. Jung and Barbara A. Mellers, “American Attitudes toward Nudges.” Judgment and Decision Making 11(1): 62-74, January 2016.

• System 1 nudges are those that take advantage of our relatively automatic, unthinking mechanism for making decisions – canny default settings are an example of a System 1 nudge.

• System 2 nudges enhance our cognitive abilities, perhaps by providing more information – calorie counts on food items are an example of a System 2 nudge. 

• Study 1 conducted by Jung and Mellers looks at nine System 1 nudges and four System 2 nudges, in an internet-based survey (n=250). Subjects are asked if they are for or against nudges, and then rate the intensity of their feelings on the subject. (If you are unsure, you will be asked to explain why!) Subjects also rate nudges on various scales, such as whether they are a threat to autonomy. 

• Jung and Meller's Study 2 manipulates the “framing” of the nudges, sometimes emphasizing individual effects, sometimes social effects; sometimes highlighting the benefits, sometimes highlighting the avoidance of costs. Attitudes also are collected about companies that institute nudges. 

• System 2 nudges receive more support than System 1 nudges – but one System 2 nudge, where government provides a website that tracks people’s expenditures on food, energy, and so on, is disliked in a System 1-like manner. 

• Also disliked are opt-out organ donation lists, those misleading white lines on Lake Shore Drive, one-click charitable donation opportunities at store check-outs, and credit card online payment mechanisms that default to fully paying off the debt. 

• Empathic folks tend to support System 1 and System 2 nudges; conservatives and individualists tend to oppose both types of nudges. (“Reactant” people oppose System 1 nudges.) System 2 nudges are viewed as more effective, though evidence generally supports the superior effectiveness of System 1 nudges. 

• Framing doesn’t matter much on average, but does matter with some sub-groups; for instance, “reactant” people oppose nudges more strongly when the frame points out the individual costs of not going along. Feelings about companies that nudge basically track the feelings about the nudges the companies implement.

Zarghamee et al. (2017) on Nudging Charitable Giving

Homa S. Zarghamee, Kent D. Messer, Jacob R. Fooks, William D. Schulze, Shang Wu, and Jubo Yan, “Nudging Charitable Giving: Three Field Experiments.” Journal of Behavioral and Experimental Economics 66: 137- 149, February 2017 [abstract here].

• Study 1: Students had earned money over the duration of the semester by taking part in experiments; this study asked them if they wanted to donate some or all of their earnings to charity. 

• Envelopes were provided such that students could either donate some of their earnings (opting in to charity, n=69), or, request a refund from the contribution of their money (opting out of charity, n=118). 

• The opt-out version increases contributions by some 25%. 

• Study 2 (n at most 59) looks at whether some cheap talk and a vote prior to deciding to contribute to charity – and potentially to keep donating for 10 months – can induce more giving than without the chitchat and vote. The cheap talk does the (cheap) trick, inducing higher donations by some 47%.

• Study 3 (n=70) involves one treatment where the charity mentions HIV, whereas the other treatment does not. The treatment makes no difference to donations, but changes to positive and negative affect during the experiment do influence giving. A lower positive affect decreases giving, but an increase in negative affect increases giving.

Liu and Onculer (2017) on Ambiguity Attitudes

Yuanyuan Liu and Ayse Onculer, “Ambiguity Attitudes over Time.” Journal of Behavioral Decision Making 30: 80-88, 2017. 

• Ambiguity aversion is not uncommon when dealing with relatively high-probability gains; ambiguity neutrality or even ambiguity seeking comes into play for low-probability gains. (Ambiguity attitudes can be quite different for loss settings or for mixed gain-loss scenarios.)

• This article investigates whether delayed resolution of uncertainty changes attitudes towards ambiguity. The authors find that a one-year delay tends to undermine ambiguity aversion in those high-probability gains scenarios. 

• Liu and Onculer propose that for immediate prospects, the affective system (Kahneman’s system 1) makes the call, but that in asking people to think about risks with future resolution, the cognitive (system 2) tends to take over, and dissipates the ambiguity aversion that appears in the high-probability condition. 

• For low-probability gains, system 2 is in charge even for immediate prospects, so delay has no effect on ambiguity attitudes.

• Affect can influence decision making. Likely events tend to be psychologically closer than unlikely ones, increasing reliance upon affective decision making. Likewise, immediacy also triggers affective decision making. Temporal distance, alternatively, will privilege cognitive decision making.

• The authors posit that for immediate decisions concerning high-probability gains, ambiguity aversion is present, but for low-probability gains, ambiguity aversion or a weak preference for ambiguity emerges. If the resolution of the prospects is delayed, then ambiguity aversion towards high-probability gains will be reduced, with no effect on low-probability gains.

• Priming subjects to adopt a cognitive decision-making style will reduce ambiguity aversion for high-probability prospects. Alternatively, for temporally distant prospects, priming subjects to use an affective style will increase ambiguity aversion for the high-probability prospects. 

• In a series of three web-based urn-problem surveys, the authors find support for their hypotheses.

Bühren and Pleßner (2014) on “The Trophy Effect”

Christoph Bühren and Marco Pleßner, “The Trophy Effect.” Journal of Behavioral Decision Making 27: 363-377, 2014 [pre-publication version pdf here].

• For everyday (convenience) goods, the endowment effect is reflected in about a 2-to-1 ratio of willingness-to-accept (payment to relinquish a good) to willingness-to-pay (to acquire the good). But for environmental goods or tickets to a basketball game, the ratio could be much higher. The gap is smaller when folks are in a good mood and larger when folks are in a bad mood, though sadness (as opposed to a bad mood) tends to reduce the gap. 

• The authors conduct a series of experiments involving endowing half of the subjects with a pen, under four treatment conditions. All the subjects know that the pen, though a nice one, could be purchased at a nearby shop for 2.10 euro. 

• In the Baseline treatment, half the subjects are given pens, then, willingness-to-accept (wta) and willingness-to-pay (wtp) are assessed. In the Trophy treatment, there is a 15-minute math quiz. Those who score above the median receive a pen, and become potential sellers in the exchange game to follow. 

• In the Work treatment, sellers are chosen randomly, but then they must take the math quiz before being given their pen. (They worked for their pen, they are told, though their performance on the quiz is immaterial.) In the Lottery treatment, everyone is informed that there is a lottery for pens, and the half who win the lottery are given pens. 

• The baseline treatment results in the usual (but weird!) endowment effect, with wta about twice as high as wtp. The Lottery treatment results in a slightly higher, but statistically equivalent, ratio. (Losers in the lottery don’t have a wtp that is lower than in the baseline treatment.) The Work treatment gives similar results, though the average wta (for those diligent workers!) is enhanced. 

• The broader “winning” condition (Trophy plus Lottery Treatments) yields a higher wta (compared to the other two treatments). The broader “work” condition (Trophy plus Work) yields a jump in wta, too. The Trophy treatment has a huge impact on wta, which went to 4.40 euro – and also dropped wtp from 1 euro to .5 euro; the wta/wtp ratio assessed at the medians is 9.6! It looks like the work element (taking the test) is slightly more important than the winning element in driving the trophy effect. And math quiz “losers” don’t like having the pen around to remind them of their failure. 

• The authors replicate a standard finding, that people do not anticipate the endowment effect. In the Work condition, they expect their wta to be less than 2 euro, but it is over 3.5 euro after the 15-minute quiz. 

• In one study, participants are asked how likely they think it is that their math test had been mis-graded. Trophy winners seem to decrease their wta when doubt of their deserving creeps into their mind. In yet another study, there’s (1) a two-hour delay or (2) a one-week delay before the wta and wtp valuations are assessed. With a one-week delay, we are back at the baseline endowment effect: the trophy effect evaporates. And the two-hour delay is statistically equivalent to the one-week delay.

Morewedge and Giblin (2015) Look to Explain the Endowment Effect

Carey K. Morewedge and Colleen E. Giblin, “Explanations of the Endowment Effect: An Integrative Review.” Trends in Cognitive Sciences 19(6): 339-348, June, 2015 [pdf].

• Endowment effects tend to be demonstrated in one of two ways: (1) the “exchange paradigm,” where people who are endowed with a good are less willing to trade it for another good than pre-endowment preferences would suggest; and, (2) differences between the willingness to pay (wtp) for a good by a non-owner and the willingness to accept payment (wta) by an owner – differences which seem to materialize about the time the non-owner becomes an owner. 

• Loss aversion is a standard underlying explanation for the endowment effect; once you own a good (or even expect to), your ownership becomes your reference point, and situations where you no longer own it are evaluated as losses relative to the reference point. 

• The authors look at five underlying mechanisms that are claimed to give rise to loss aversion and endowment effects, and offer a more general framework: “attribute sampling bias.” 

• Buyers and sellers pay attention to reference prices (low for buyers, high for sellers) that will increase their transactional utility. Prices are just one example of how buying and selling activate different cognitive frames that direct attention and recall to different pieces of information. Buyers and sellers do not have the same information readily in mind, so the endowment effect does not arise because they value identical attributes differently. People even have trouble recalling frame-inconsistent information. 

• Psychological ownership raises wta for two reasons: (1) ownership creates a connection between your identity and the good; the better that you feel about yourself, the better you will feel about the good. Losing the good can seem like a threat to your identity. (2) ownership helps you remember good feelings about the good, which otherwise might be harder to access. 

• Their attribute sampling bias explanation resembles the well-known phenomenon where people seek out information that confirms their current beliefs. 

• Sadness tends to reduce or reverse the endowment effect – it creates an implicit interest in changing your circumstances, so non-owners are more willing to acquire a good and owners are more willing to sell a good. But most frames in the exchange setting (other than sadness) tend to bias people towards maintaining the status quo. 

• People are eager to trade away a “bad”, which can’t be explained by some other approaches to endowment effects, where whatever you own you value more highly. Further, endowment effects are higher for those goods (like environmental goods) that have vague attributes, giving more room for attention to a biased sample of attributes to take effect.

Do People Choose What Makes Them Happy?

Daniel J. Benjamin, Ori Heffetz, Miles S. Kimball, and Alex Rees-Jones, “What Do You Think Would Make You Happier? What Do You Think You Would Choose?” American Economic Review 102(5): 2083–2110, 2012 (ungated version here).

• The motivation for this study by Benjamin et al. (2012) is that subjective wellbeing (SWB) is often used as a proxy for unmeasureable “utility.” In the standard economics model, people choose in ways to maximize their utility; do they choose in ways to maximize subjective wellbeing? 

• Benjamin et al. use surveys with binary choices such as whether you would choose a job with more pay and less sleep or an alternative job with less pay and more sleep. People also are asked to indicate which option would make them happier. 

• The results of the surveys are that subjective wellbeing and choice are strongly positively correlated; indeed, of all the factors measured, (predicted) subjective wellbeing has the strongest connection to (predicted) choice. The measure of subjective wellbeing that is most strongly connected with choice is one that tries to capture lifetime satisfaction, as opposed to measures that aim more at shorter-term positive affect. 

• When subjective wellbeing and choice deviate, they do so in a systematic way. People will make choices that do not maximize subjective wellbeing in circumstances in which the chosen option contributes more to a sense of purpose, for instance, or family happiness, or control, or social status. 

• To investigate whether self-control shortcomings explain the divergence between choice and happiness – that is, I know I would be happier with choice A but I cannot resist temptation so I make choice B – the authors asked respondents about their meta-preferences, about which choice they wished they would make. Most of the deviations of choice from SWB maximization cannot be explained by self-control problems.

Will Wilkinson (2007) on Happiness and Policy

Will Wilkinson, “In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?” Policy Analysis no. 590, April 11, 2007.

• Wilkinson challenges three claims: (1) the US-market style approach and restricted welfare state are bad for happiness; (2) positional externalities justify progressive taxation; and, (3) economic growth is unimportant for happiness. 

• Do people understand their own affective states? If we have neural habituation, no. We can feel terrific and not notice. Think of all those people who were constantly suffering before antibiotics and other medical advances. 

• We can be sad and happy simultaneously. Happiness itself is multidimensional; even happiness researchers can’t agree on how to measure it. 

• Asking if it is better to live in Denmark or the US is a bit like asking whether it is better to live in the city or the country. It depends. The US actually ranks pretty high in measured happiness, incidentally. 

• There isn’t much evidence that lower inequality, a more advanced welfare state, or higher government spending, raise subjective well-being, even among the poor or the left-leaning. 

• While income inequality has been rising of late in the US, inequality in happiness is falling. 

• Economic freedom is a strong correlate with subjective well-being. 

• Culture allows us to embed status-seeking within positive sum environments.

Stevenson and Wolfers (2008) on the Easterlin Paradox

Betsey Stevenson and Justin Wolfers, “Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox.” Brookings Papers on Economic Activity, pages 1-87, Spring 2008.

• The Easterlin “Paradox”: Within countries at a point in time, income and subjective well-being (SWB) are positively correlated: richer people are happier. This relationship between income and SWB does not seem to hold when looking between countries, or in data over long periods of time within a country. 

• One possible resolution of the Easterlin Paradox is that reference-dependent preferences might be at work. People are happier if they are relatively rich within their country, but they don’t compare themselves with people in other countries or people thirty years ago. If happiness depends on relative income, maybe we need to have highly progressive taxation, as higher income (or work effort) for one person “imposes” a relative deprivation cost upon everyone else. 

• Stevenson and Wolfers re-examine the evidence, and the Easterlin Paradox disappears: time series and cross-country studies display essentially the same correlation between SWB and (log) income as is calculated from within-country cross-sections. On average, higher income goes with higher SWB. 

• Life satisfaction and happiness are not identical concepts, with happiness more about affect (in Kahneman's typology, System 1). Happiness is less strongly correlated than is SWB with income. Tanzania and Nigeria exhibit high happiness, low SWB. 

• A rise in income of $100 contributes more to happiness in poor countries than in rich countries – but it contributes to higher happiness in both rich and poor countries. 

• The US is the exception, with a small fall in SWB between 1972 and 2006, despite rising average income. The US data might reflect stagnation in middle-class income.