What good is happiness?

Abstract

In this paper we examine whether, and how, welfare economics should incorporate the insights from happiness and satisfaction studies. Our main point is that measuring well-being by reported satisfaction levels can come in connect with individual judgments about their own lives and that these individual judgments should be respected. We propose an alternative measure of welfare in terms of equivalent incomes that does respect individual preferences. Satisfaction surveys are useful, however, to derive information about preferences. We illustrate our approach with panel data from the Russian Longitudinal Monitoring Survey (RLMS) for the period 1995-2003 and we compare the results for equivalent incomes with the results for sub jective satisfaction.