Economic Approaches to Understanding Change in Happiness

26 Pages Posted: 3 May 2014

See all articles by Nattavudh Powdthavee

Nattavudh Powdthavee

University of Warwick

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Abstract

Are people condemned to an inherent level of experienced happiness? A review of the economic research on subjective well-being gives reason to the assessment that happiness can change. First, empirical findings clearly indicate that people are not indifferent to adverse living conditions when reporting their subjective well-being as observed for limited freedom of choice, low levels of democratization, unemployment, low income, etc. Second, considering people's adaptation to life events and (external) conditions reveals substantial heterogeneity in the speed as well as the degree of reversion. Together, the evidence suggests that reported subjective well-being is a valuable complementary source of information about human well-being and the phenomenon of adaptation. Many challenges, of course, remain. First, we are only at the beginning of understanding variation in the process of adaptation. The modeling of happiness over the life course promises a productive perspective. Second, adaptation might well pose a challenge to individual decision-making when people are not good in predicting it. Third, adaptation might have great consequences for public policy and the idea of social welfare maximization depending on how fast and slow adapting people are treated.

Keywords: adaptation, economics and happiness, life course perspective, subjective well-being

JEL Classification: D03, D60, I31

Suggested Citation

Powdthavee, Nattavudh and Stutzer, Alois, Economic Approaches to Understanding Change in Happiness. IZA Discussion Paper No. 8131. Available at SSRN: https://ssrn.com/abstract=2432395

Nattavudh Powdthavee (Contact Author)

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom
+44 (0)2476 528240 (Phone)

Alois Stutzer

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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