Abstract: Some individuals who are destitute report to be happy, while others who are very wealthy report to be miserable. There are many possible explanations for this paradox; Carol Graham focuses on the role of adaptation. Adaptation is the subject of much work in economics, but its definition is a psychological one. Adaptations are defense mechanisms; there are bad ones like paranoia, and healthy ones like humor, anticipation, and sublimation. Set point theory—which is the subject of much debate in psychology—posits that people can adapt to anything, such as bad health, divorce, and extreme poverty, and return to a natural level of cheerfulness. Graham’s research from around the world suggests that people are remarkably adaptable. Respondents in Afghanistan are as happy as Latin Americans and 20 percent more likely to smile in a day than Cubans. The findings suggest that while this may be a good thing from an individual psychological perspective, it may also shed insights into different development outcomes, including collective tolerance for bad equilibrium. The author provides examples from the economics, democracy, crime, corruption, and health arenas.
When I sell liquor, it’s called bootlegging; when my patrons serve it on Lake Shore Drive, it’s called hospitality. (Al Capone)
In the past few years there has been a burgeoning literature on the economics of happiness. While the understanding and pursuit of happiness has been a topic for philosophers—and psychologists—for decades, it is a novel one for economists. Early economists and philosophers, ranging from Aristotle to Bentham, Mill, and Smith, incorporated the pursuit of happiness in their work. Yet as economics grew more rigorous and quantitative, more parsimonious definitions of welfare took hold. Utility was taken to depend only on income as mediated by individual choices or preferences within a rational individual’s monetary budget constraint (revealed preferences). Most economists shied away from survey data (expressed preferences), under the assumption that there is no consequence to what people say, as opposed to the concrete trade-offs that are posed by consumption choices. This focus on revealed preferences has been a powerful tool for answering many economics questions. Yet it does not do a good job of explaining a number of questions. These include the welfare effects of institutional arrangements that individuals are powerless to change; choices that are made according to perceptions of fairness or other principles; situations where individuals are constrained in their capacity to make choices; and seemingly non-rational behaviors that are explained by norms, addiction, and self-control. Happiness surveys provide us with a novel metric. Traditional approaches also do not do a good job of explaining why some individuals with very little capacity to consume are very happy, while others with a very great capacity are miserable.
In this paper I focus on the latter question and build on research that I have done on happiness across the world, in very poor and in very rich countries (Graham 2009). It departs from my earlier research (Graham 2005) on how the usage of novel metrics to assess the well-being of individuals can (or cannot) contribute to our understanding of development questions; and in this is distinct in its focus on the role of adaptation. Adaptation may shed insights on particular development outcomes, such as societies stuck in bad equilibrium, with high levels of poverty, corruption, and other negative phenomena, with most citizens reporting relatively high levels of happiness. I provide examples from countries and regions around the world—a much broader developing country representation than the previous research—and from a number of domains, including macroeconomic growth, democracy, crime, corruption, and health.
While adaptation is a topic of many economic studies, its roots are in a psychological definition. Adaptations as defined by Anna Freud are unconscious thoughts and behaviors that either shape or distort a person’s reality. A simpler definition is that they are defense mechanisms. There are unhealthy ones like paranoia and megalomania, which make reality tolerable for the people enjoying them, and there are neurotic defenses employed by “normal” people, such as dissociation and memory lapse. “Healthy” or mature adaptations include altruism, humor, anticipation, and sublimation (Wolf Shenk 2009).
People can adapt to almost anything: bad health, divorce, poverty, unemployment, and high levels of crime and corruption. Indeed, some psychologists believe that individuals can adapt back from almost any negative event to their natural set point of cheerfulness. Adaptation is seemingly a very good thing—a human defense mechanism.
My studies of happiness around the world suggest that the human race is tremendously adaptable. People in Afghanistan, for example, are as happy as Latin Americans and are 20 percent more likely to smile in a day than are Cubans. The poor in Africa are more hopeful than the rich, and the poor in poor countries in Latin America assess their health better than the poor in rich countries in Latin America. Kenyans are more satisfied with their health systems than are Americans, and victims of crime in crime-ridden cities across the world are less happy about being crime victims than are crime victims in much safer places. What can we make of this?
In this paper, I argue that the ability to adapt is indeed a good thing from an individual happiness and psychological perspective. But this same human defense mechanism may shed insights on how some societies stay stuck in bad equilibrium—such as high levels of corruption, bad governance, or bad health—for prolonged periods of time, while much more prosperous ones continue to go from good to better equilibrium.