Article

Some Insights on Development from the Economics of Happiness

Carol Graham

Abstract

The literature on the economics of happiness in the developed economies finds discrepancies between reported measures of well-being and income measures. One is the so-called “Easterlin paradox”: average happiness levels do not increase as countries grow wealthier. This article explores how that paradox — and survey research on reported well-being more generally — can provide insights into gaps between standard measures of economic development and individual assessments of welfare. The author’s research on reported well-being in Latin America and Russia finds notable discrepancies between respondents’ assessments of their own well-being and income or expenditure based measures. Accepting that there is a wide margin for error in both types of measures, the article posits that taking such discrepancies into account may help us better understand development outcomes by providing a broader view on well being than comes from income-based measures alone. It suggests particular areas where research on reported wellbeing has the most potential to contribute. Yet the paper also notes that some interpretations of happiness research — in particular psychologists’ set point theory — may be quite limited in their application to development questions, and issues a note of caution about the direct translation of results from happiness surveys into policy recommendations.

More