Some Insights on Development from the Economics of Happiness

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.