Happiness Economics

Happiness economics is the formal academic study of the relationship between individual satisfaction and economic issues such as employment and wealth.

Happiness economics is the formal academic study of the relationship between individual satisfaction and economic issues such as employment and wealth. The main tools used include surveys and indices tracking what different economies offer their residents. Happiness economics apples econometric analysis to discover which factors might increase or decrease human well-being and quality of life. Happiness economics suffers from several shortcomings which lead many economists to question its value over established economic research methods.

Where standard economics relies on measurements of income and consumption or other observed behaviors to demonstrate the immeasurable concept of utility, or the satisfaction of material wants and needs, happiness economics uses surveys and related methods to elicit people to directly reveal their level of satisfaction. Happiness economics apples econometric analysis to discover which factors might increase or decrease human well-being and quality of life.

Happiness economics is a relatively new branch of research. Mainstream economics has long relied on the concept of utility, the enjoyment that people experience from the satisfactions of wants and needs. However, because the subjective, internal experience of happiness, joy, or felt unease cannot be directly observed or measured by an external observer, economists rely on observing people's actions to reveal what gives the utility.

To measure this utility, economists use various observable proxies, mostly market prices in terms of money, to indicate how much utility people experience from various economic goods or activities. The basic idea is that measuring the amount of money that people are willing to pay or accept for various goods and services on a market demonstrates the amount of utility they expect to receive from those things. This also means that economists often use indicators like a person's income or total consumption to indicate their total utility.

Happiness economics is an attempt to overcome certain shortcomings of this traditional approach by trying to measure utility, or happiness, more directly. One major shortcoming of traditional utility theory is that because it relies on observed market prices, quantities, and incomes, it cannot account for the enjoyment that people receive from goods, services, activities, or amenities that occur outside of markets.

investopedia