What Makes People Happy?

Abstract

In the eighteenth century, Jeremy Bentham (1748–1832) became the leading philoso-pher of utilitarianism, a view holding that an individual's prime concern should be their own happiness. 1 The philosophy also urged that the objective of public policy should be the maximization of the sum of all people's happiness. Bentham's implicit view was that happiness could be measured and that it could also be compared across different individuals. That no obvious ways then existed to measure happiness was recognized as a challenge, but was not seen to undermine the basic philosophy. 1 See the "Timeline of Great Economists" at the back of the textbook for brief descriptions of the life and work of several great economists as well as notable historical events of the time. In the early twentieth century, however, a new breed of economists (then called ―political economists‖) argued that a measurable concept of happiness (or utility) was not necessary in order to derive unambiguous predictions about individual behaviour. It was only necessary that individuals had a stable set of preferences—that is, they could always specify whether bundle A was preferred to bundle B, bundle B was preferred to bundle A, or that the individual was indifferent between the two bundles. For the next several decades, economists built models based on the idea that individuals strive to maximize their utility, even though it was also recognized that utility could be neither observed nor measured. In addition, in most economic models individual utility was assumed to be a function of the individual's level of real income, or perhaps real con-sumption. Economists were usually quick to admit (when the question arose) that other things also matter for an individual's utility, but their models continued to emphasize the market-based, easily quantifiable variables such as real income or real consump-tion. In recent years, however, economists have been asking whether it might, after all, be possible to measure individual happiness and, if so, what is it that actually makes people happy? In this research program, economists rely heavily on progress made by psychologists and others in the social sciences. Here we offer a brief introduction to some of the results from this research. As you will see, the results contrast with a few standard assumptions in economic theory, and also lead to some unusual policy impli-cations. 2