In the midst of this global pandemic, we regularly see ourselves battling with questions of how unsustainable our “normal” has been — whether we can improve upon the guiding principles of our public policies that are largely derived from the field of Economics. Economics is not merely the management of resources — it’s a framework of civilisation. Our normal is currently defined by the base metric of economic interaction — utility. But we know there’s more, there is happiness.
The country of Bhutan releases a Gross National Happiness Index (GNH) every year instead of the Gross Domestic Product (GDP) statistics prepared by the other countries in the world. Bhutanese government feels that GNH offers a more holistic and citizen-friendly exploration into living conditions and provides better opportunities for the ruling government to take decisions. The fundamental parameters it uses for calculating the index are based on 9 major domains- psychological wellbeing, health, time use, education, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience and living standard.
Taking inspiration from Bhutan, in July 2011 the United Nations adopted a resolution called Happiness: Towards a Holistic Definition of Development to encourage measurement of happiness and consequently form the basis of policy decision making. Under this resolution, the World Happiness Report is released each year.
But, in the largely capitalist form of society that we live in — it is still the economic output that guides our lives. The fundamentals of economics (that largely guide public policy) are based on maximising satisfaction/utility — hence it becomes an output maximisation problem for the economy as a whole.
How is utility different from happiness? Are the most economically advanced states the happiest? Will the world order change if we shift our focus from economic output to happiness? These are some of the questions that I have tried to answer below.
Utility vs Happiness
Utility largely refers to the satisfaction derived from consuming a product. Adam Smith uses the metaphor of invisible hand to convey the free market forces that help match demand and supply — the base of it all being utility. We demand a product if we think it gives us satisfaction and then the demand and supply interact to give us a price. Utility certainly takes care of disutility as we consume more of one good, preference between bads and goods, etc — hence it is quite flexible. But then, does it define happiness?
There is no universally accepted definition of happiness. While broadly the West focuses more on a hedonistic view of happiness and finds it in ‘pleasure’, East (largely Buddhism) focuses on a eudaimonic view of happiness and focuses on meaning and wisdom. Some other schools of thought from East focus on collectivism over individualism, harmony over mastery, contentment over satisfaction and even valuing suffering than avoiding suffering(3). Greater good at University of Berkeley subscribes to this definition by positive psychology researcher Sonja Lyubomirsky — “the experience of joy, contentment, or positive well-being, combined with a sense that one’s life is good, meaningful, and worthwhile.” (4) There’s also a case to be made for short-term vs long-term happiness, well because if you have watched Inside Out, I’m sure you’ll agree that you wouldn’t give ‘Joy’ full control over your life. Well then perhaps, Bhutan’s definition of happiness does seem to be quite wholesome.
Economics has long grappled with the idea of happiness vs utility.
- In case of ordinal measurement of utility — marginal rate of substitution shows that people consume goods in proportion of their prices. Hence consumer preferences can be translated in terms of prices and that’s what we see in demand curve. In 1960s, Robinson did clarify that “It is the desire, not the satisfaction that is measured by price, yet the idea of satisfaction cannot be kept out.” (5)
- Kahneman and Krueger stated that: “While various measures of well being are useful for some purposes, it is important to recognise that subjective well being measures features of individual’s perceptions of their experiences, not their utility as economists typically conceive of it.” (5)
- There is a doubt about deontological vs consequentialist analysis of utility/happiness. Kahneman stated that it is “quite surprising that in standard economic analysis the utility of decision outcomes is assumed to be determined entirely by the final state of endowment, and this therefore reference-independent.” (5)
- Cardinal measurement of utility leads of diminishing marginal utility analysis, unsure if something similar can be said about happiness.
- Buono S. Frey describes the relationship of happiness to utility as — standard economic theory takes utility to be inferred from behaviour — revealed preferences. Happiness research adheres to a subjective view of utility rather than purchase decisions reflecting happiness. (6)
- Two Yale researchers, Miles Kimball and Robert Willis, suggest looking at happiness as a sum of 1. Elation or short-run happiness — based on recent news and 2. Baseline mood or long-run happiness. (7)
However, mainstream economic analysis continues to focus on utility. But there is a recognition of the inadequacy of GDP as a measure of welfare and hence Human Development Indicators are given a lot of importance as well.
What is the basis of the World Happiness Report?
The World Happiness report is based on the happiness scores/life ladder of the Gallup World Poll. It asks the following question: “Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?” This aggregate life ladder is the final happiness score for each country. The report further tries to explain this happiness score in terms of the following factors:
- GDP per capita
2. Healthy life expectancy: This data is extracted from the WHO’s Global Health Observatory data repository.
3. Social Support: This is the national average of the binary response to the question: “If you were in trouble, do you have relatives or friends you can count on to help you whenever you need them, or not?”
4. Freedom to make life choices: This is the national average of the binary response to the question: “Are you satisfied or dissatisfied with your freedom to choose what you do with your life?”
5. Generosity: This is the residual of the regression run on per capita GDP of the national average of response to the question “Have you donated money to a charity in the past month?”
6. Corruption perception: This is the national average to the binary responses of the two questions: “Is corruption widespread throughout the government or not?” and “Is corruption widespread within businesses or not?”
7. Positive effect: This is taken as the national average of the responses to the following three questions: “Did you experience the following feelings during A LOT OF THE DAY yesterday? How about happiness? Did you smile or laugh a lot yesterday?” and “Did you experience the following feelings during A LOT OF THE DAY yesterday? How about enjoyment?”
8. Negative effect: This is taken as the national average of the responses to the following three questions: “Did you experience the following feelings during A LOT OF THE DAY yesterday? How about Worry?”, “Did you experience the following feelings during A LOT OF THE DAY yesterday? How about Sadness?”, and “Did you experience the following feelings during A LOT OF THE DAY yesterday? How about Anger?”
Then the next part is very interesting. It runs regression of the happiness score on the above factors (for those who aren’t versed with this technique, it basically is a statistical technique that tries to explain a dependent variable in terms of one or more independent variables). Next, a hypothetical country is created called Dystopia — which has the lowest national average scores for each of the six variables. The difference of each of the six factors is taken from the value of the respective factor in Dystopia and multiplied by the respective regression coefficient (coefficient means the relative importance of that independent variable to explain the dependent variable). All these factors added + Score of dystopia+ error term = Happiness ladder score for each country.
What does the World Happiness Report tell us?
First — there is quite a good positive relationship between the happiness score and per-capita GDP.
It seems that while utility might not be enough, it certainly doesn’t do disservice to happiness.
Second — the below analysis is based on the 2019 Happiness Report. This is how the world differs when viewed from the lens of GDP vs the lens of happiness (8):
The lightest yellow tinge represents the lowest score, while the darkest red tinge represents the highest score. Note that this depiction is based on the transformed data (post regression) because raw data is unclean. (9)
Notice how India stands out in the comparison of the two heat maps. We rank relatively lower on the happiness scale but higher on the per-capita GDP scale. While for the African countries, it is the other way round.
I also found the following timeline trajectory for India. Without more analysis on this drop, I wouldn’t want to make any particularly worrisome comment.
Some other useful statistics can be obtained from the report as follows:
Hence, on an average, the world is only halfway through to its highest level possible of happiness. The greater than 0.5 mean scores of positive affect, social support, freedom to make life choices and less than 0.5 mean score of negative affect also seems great. The scores for perceptions of corruption seem worrying, whereas the way generosity is captured is somewhat puzzling for interpretation.
From 2012 to 2019, the regression results have changed as follows:
Notice how the explanatory power of healthy life expectancy has reduced (does this mean we live more in the moment now?), whereas that of freedom to make life choices has increased and our state of governance worries us a lot more now.
Will the world order change if we shift our focus from economic output to happiness?
If we use data (cluster analyses — simply it uses distance between data to suggest possible clusters) to help us segregate countries into least developed (1), developing (2) and most developed (3) based on GDP vs happiness, we get the following results:
Both of these clusterings have been performed on transformed data, i.e. data post regression (9) as raw data is unclean. Hence the clusterings based on GDP only took the the part of happiness explained by GDP, whereas clusterings based on happiness took the parts of happiness explained by all six factors except the standard Dystopia addition.
What are some notable shifts in World Order?
- Based on GDP the number of cluster constituents in decreasing order of development are as follows: 44, 73 and 39; whereas based on happiness factors the numbers are as follows: 28, 82, 46. The number of countries with developed status has reduced.
- India and Pakistan have moved from developing to least developed status, whereas China maintains its developing status.
- South Korea and Japan have moved from developed to developing status.
- Bhutan, which monitors GNH instead of GDP, has moved from developing to developed status.
- World Happiness Report 2019 (including online data and appendices)
- World Happiness Report 2012
- R-code for heat maps taken from: https://rpubs.com/Prakki_Rama/whd
- Data of Figure 2.6 in the available Online data of World Happiness Report 2019