November 07, 2011
Measuring Aggregate Happiness
Posted by Peter Huang

As promised this post will be about recent proposals advocating that governments adopt various measures of aggregate happiness to complement such traditional measures of economic well-being as Gross Domestic Product (GDP) or Gross National Product (GNP). The basic premise for these proposals can be found in the first major campaign speech that Senator Robert F. Kennedy gave on March 18, 1968 at the University of Kansas. That speech challenged the prevailing orthodoxy of how governments measure progress and well-being.


Not surprisingly, the speech is right in that many items that are part of GNP do not reflect genuine social progress. To be clear and for the record, most economists themselves have long understood that GDP is an imperfect proxy for social welfare. Such proposed refinements as the idea of Net Economic Welfare (NEW) attempt to improve GDP by placing values upon and subtracting the costs on such negative externalities as crime, congestion, and environmental pollution from GDP. The last paragraph of the speech is what proposed social measures of subjective well-being intend to capture:

"Yet the Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans."

Of course, the claim that GNP "measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans" is a bit overstated. Nonetheless, GNP can be improved to better measure what governments and societies value. There is currently a lively debate over whether and if so, how governments can pragmatically measure aggregate happiness. One reason that such a debate is and will be contested is that once an item is measured and recorded, that item becomes harder to ignore and is likely to become a part of policy discussions. As Kenneth Arrow pointed out on pages 47-48 of his book, The Limits of Organization,


"The Full Employment Act of 1946 amounted to nothing more than a statement that full employment was at last on the Federal agenda, and many felt that this was a hollow victory indeed. But those who opposed it so violently were not deceived; in the long run, this recognition was decisive, though the process of implementing the responsibility was slow indeed. Once an item has arrived on the agenda, it is difficult not to treat it in a somewhat rational manner, if that is at all possible, and almost any considered solution may be better than neglect."

Professors Kahneman and Sugden introduce a methodology of policy evaluation based on experienced utility to environmental economics that avoids well-known problems of preference anomalies for contingent valuation studies. French President Nicolas Sarkozy recently created a Commission on the Measurement of Economic Performance and Social Progress, chaired by 2001 Nobel Laureate in economics, Joseph E. Stiglitz. The report by this commission makes a number of recommendations, including “Recommendation 10: Measures of both objective and subjective well-being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own survey." In a discussion paper titled Beyond GDP and Back: What is the Value-Added by Additional Components of Welfare Measurement, economists Sonja C. Kassenboehmer and Christoph M. Schmidt analyze quality-of-life indicators that are suggested in the Stiglitz Report to find that much of the variation in many well-being measures is already well-captured by such traditional economic indicators as GDP and the unemployment rate, but because the correlation of alternative indicators with monetary measures is far from perfect, there is room to augment traditional statistical reporting by non-standard indicators.

British Prime Minister David Cameron recently announced similar plans to collect national well-being measures that incorporate life satisfaction. In an article titled Emotional Prosperity and the Stiglitz Commission, British economist Andrew Oswald argues that countries are capable of and should measure their emotional prosperity and focus on mental well-being. In that article, Oswald summarizes seven studies that suggest emotional prosperity and broad measures of psychological well-being have recently been declining over time. In a National Bureau of Economic Research working paper titled, Beyond GDP? Welfare across Countries and Time, American economists Charles I. Jones and Peter J. Klenow propose a simple summary statistic for a country’s flow of well-being that combines data about consumption, inequality, leisure, and mortality.

In an article titled Happiness and Public Choice, European economists Bruno S. Frey and Alois Stutzer caution that a policy of maximizing aggregate happiness faces a number of difficulties including that it reduces people to being merely happiness metric stations in addition to discounts problems with political institutions and incentive distortion. In their article, they instead propose two practical ways to utilize happiness research for policy: (1) facilitate identification of those institutions that assist people in best achieving their personal goals and in so doing contributing maximally to individual happiness, and (2) provide crucial information as inputs to political discussion process. 

Instead of maximizing a measure of aggregate happiness, it might be more politically feasible to minimize a measure of aggregate misery, stress, or unhappiness, such as the U-index, which in their article titled Recent Developments in the Measurement of Subjective Well-Being, Daniel Kahneman and labor economist Alan Krueger proposed and defined to measure the fraction of time that people spend experiencing unpleasant emotions. The U-index provides empirical information about negative emotional experiences that society may care about.

Another way to incorporate happiness data into policy analysis is to introduce maximum levels of a measure of unhappiness or minimum levels of a measure of happiness as constraints that government policies must satisfy while optimizing some objective function or goal besides happiness or unhappiness. This approach is analogous to philosopher Robert Nozick’s approach in his book titled Anarchy, State, and Utopia to incorporating rights as constraints that are not to be violated as opposed to rights as part of a policy goal to be optimized.

In her article titled Happiness on the Political Agenda? PROS and CONS, philosopher Valérie De Prycker argues that actual incorporation of happiness research into policy implicates a number of value-loaded ethical, ideological, and moral issues. But, in his article titled Greater Happiness for a Greater Number Is that Possible and Desirable?, sociologist Ruut Veenhoven believes that empirical research about life satisfaction refutes all theoretical philosophical objections against the greatest happiness principle. In yet a third article titled Greater Happiness for a Greater Number: Some Non-controversial Options for Governments, social scientist Jan C. Ott believes that governments can increase average happiness, eventually reduce happiness inequalities, and realize both purposively by non-controversial means. In another article titled Good Governance and Happiness in Nations: Technical Quality Precedes Democracy and Quality Beats Size, Professor Ott examines how quality of governance and in particular technical as opposed to democratic quality is correlated with average happiness of a country's citizens and finds that technically good governance appears to be a universal condition for happiness independent of culture. Once technical quality of governance reaches a minimum level, democratic quality of governance adds substantially to the positive effects of technical quality of governance upon average happiness.

In his chapter titled That Which Makes Life Worthwhile in the book Measuring the Subjective Well-Being of Nations: National Accounts of Time Use and Well-Being, behavioral economist George Lowenstein proposes that time-use surveys ask people not just about how much positive and negative affect is felt during a particular activity, but also if people believed that a particular activity was a valuable or worthwhile use of their time or instead a waste of their time. In their article titled Accounting for the Richness of Daily Activities, psychologist Mathew P. White and economist Paul Dolan ask people not just about how they felt during a particular activity, but also six additional questions about such non-hedonic aspects of experience as being engaged, focused, and finding meaning. These fundamental insights about how people care about not just positive affect, but also meaning in their lives raise questions about whether law and policy should care more about positive affect versus meaning in people’s lives.

In the article titled The Metrics of Subjective Wellbeing: Cardinality, Neutrality and Additivity, Australian economist Ingebjørg Kristoffersen provides a legitimate source of uneasiness about basing social policies upon aggregation of empirical happiness data via his quantitative analysis of certain mathematical properties of empirical happiness data that continue to remain contentious among economists, namely additivity, cardinality, and neutrality of such data, even though psychologists have to some degree already been able to address how to make international, interpersonal, and intertemporal comparisons of happiness data. This mathematical analysis also serves to provide a cautionary, persuasive critique of recent proposals by law professors for governments to eschew cost-benefit analysis and instead to determine and evaluate policy based upon aggregation of happiness, defined simply as experienced positive feeling.

Finally, a concern with experienced subjective well-being captured by self-reports of happiness is what economist Carol Graham terms a paradox of happy peasants and miserable millionaires, due to differences in anticipations or expectations between poor and rich people. As Graham notes, optimism among poor individuals can be a tool for their survival and parents who are poor may revise their own personal expectations downward but maintain hopeful expectations for their children. If peasants report being happy due to lowered expectations and (perhaps some) hedonic adaptation, while millionaires report misery due to envy towards even richer people and (perhaps unrealistic) expectations, should law and policy be more concerned over self-reported unhappiness of rich people, or about increasing self-reported happiness of poor folks, even if that means encouraging or nudging poor individuals to expect more of their future? 



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