Sunday, January 06, 2008

Happiness and wealth, again

On an earlier post on life satisfaction and wealth, Rizal -- by way of Kahneman -- argued that the two are positively, and quite strongly, correlated. I recalled the Economist wrote two articles on the related issue their 2006 end-year edition. According to those articles, the positive correlation between happiness and affluence is true, but the relationship seems to be non-linear, with a negative second derivative.

Said the first article:
Happiness, as measured by national surveys, has hardly changed over 50 years. The rich are generally happier than the poor, but rich countries do not get happier as they get richer. The Japanese are much better off now than in 1950, but the proportion who say they are "very happy" has not budged. Americans too have remained much as Alexis de Tocqueville found them in the 19th century: So many lucky men, restless in the midst of abundance."
And why is that so? Here's the explanation in the second article:

The science of happiness offers two explanations for the paradox. Capitalism, it notes, is adept at turning luxuries into necessities—bringing to the masses what the elites have always enjoyed. But the flip side of this genius is that people come to take for granted things they once coveted from afar. Frills they never thought they could have become essentials that they cannot do without. People are stuck on a treadmill: as they achieve a better standard of living, they become inured to its pleasures.

Capitalism's ability to take things downmarket also has its limits. Many of the things people most prize—such as the top jobs, the best education, or an exclusive home address—are luxuries by necessity. An elite schooling, for example, ceases to be so if it is provided to everyone. These "positional goods", as they are called, are in fixed supply: you can enjoy them only if others do not. The amount of money and effort required to grab them depends on how much your rivals are putting in.

I remember an old friend used to say, "The rich may not necessarily be happy. But the poor are definitely not." Well, apparently he's not wrong.

That may explain why some people still seems to think that we Indonesians are not better off than 20-30 years ago, while the truth is we are better off in absolute term. In relative terms, i.e. how do one compare with the others, well, of course it's relative.

P.S. This is interesting. Bre Redana of Kompas praised today's Hanoi, which he described as the portrait of Jakarta in the early eighties, as much better than today's Jakarta (also today's Indonesia). The reason, he implied, was the "spirit of socialism." Read here and here. Ironically, Kompas is the most obvious product of capitalism, of course.


  1. i think we need to be precise when using the word 'happiness'.

    kahneman's work is mostly valuable because it translates 'happiness' into two separate concepts: (1) your cognitive evaluation of whether you're satisfied with your life, and (2) your actual feeling of being happy (as an experienced positive emotion) from time to time.

    (1) is found to be correlated with GDP and other economic variables, while (2) isn't.

    so the message is that wealth makes you satisfied, but not necessarily happy, with your life.

    ps: and one of the best explanations of why (2) is the case is offered by dan gilbert's 'stumbling on happiness'.

  2. In response to Tirta, that is exactly what makes me puzzled. I am aware of Kahneman's point that you can be satisfied without being happy. But perhaps you can elaborate more, maybe using some psychology theories, on this seemingly paradox.

    Don't you think that it looks like the problem of finding the right "revealed preference" when asking agent?

    Moreover, if that concept separation theoretically holds, which one is more relevant in defining "happiness": feeling satisfied or feeling happy with life?

  3. One of the articles discussed Kahneman's study. Tirta, did you also refer to the notorious colonoscopy study referred to by this article?

    But the general discussion on happiness, including the nonlinear relationship between happiness and GDP, was based on the 'national surveys' that, I think, asked this simple question: “Taken all together, how would you say things are these days—would you say that you are very happy, pretty happy or not too happy?”

  4. rizal -- i'll try to make sense of the seeming paradox.

    experienced happiness, or your feeling happy from time to time, is basically one of the basic emotions: others being sad, anger, or disgust. as an emotion, happiness here is to be understood in a biological context.

    the relevant question here is why do animals have emotions in the first place. evolutionary psychologists propose that emotions work like a compass, that is, they tell you what to do and where to go, to achieve your goal. this applies to all animals, including us. for instance, brainless bacteria 'decide' to approach or avoid their target using 'proto-emotions', so to speak.

    now a compass is broken when it's pointing to one direction all the time. same with emotions, you just can't feel happy or sad most of the time -- unless you want to be diagnosed as suffering from mania or depression. normal people, rich and poor alike, need to be able to experience all of the basic emotions as required by the circumstances.

    so happiness, as an experienced emotion ('feeling', in laypeople's term) is rather independent of how much money you have, because there are always daily circumstances in which you need to NOT feel happy. even the sleeping bill gates can't be happy when his dog barks in the middle of the night.

    and importantly, this was how kahneman collected his data, by beeping people in the middle of the night and asked them about their current feeling, when some are having hot sex and others are cursing their dogs.

    on the contrary, life satisfaction -- or what i call evaluated happiness -- is not an emotion experienced. it is a cognitive evaluation, in retrospect. so if you're rich enough to have access to the all the gold and glitters you want from this world, it's hard not to say that you're not satisfied. despite the annoying barking dog, bill gates will say that he cannot ask for more from his life.

    so i think there's no paradox, because experienced happiness and evaluated happiness are not comparable.

    as for which one is more relevant to define HAPPINESS, i'll leave it to the monks and philosophers :-)

  5. Tirta, thanks, it helps. But one more small clarification: so presumably the experienced and evaluated happiness are somehow not correlated, yes?

  6. rizal -- so far as i know, they're not correlated.

    although i presume you should get some correlation at the very bottom end of the distribution (i.e. the poorest of the poor, who barely survive).

    a.p. -- no, not the colonoscopy study, but this science paper:

  7. tirta : i think evaluated happiness is related to the impact bias, isn't it? that people have this defense mechanism (as an evolutionary relic) to make the best of worst situation.

    as i may have uttered to you, it's interesting to speculate that the same mechanism also works at the collective level. e.g., people create myths or "explanations" from historical facts

    Btw, a very nice video that explains the impact bias.

  8. roby -- they may be related, as shown, among others, by kahneman's colonoscopy study.

    but it's worth noting that there are two versions of impact bias.

    kahneman's version of impact bias is retrospective (how happy was i?). dan gilbert's version is prospective (how happy will i be?).

    it gets all the more interesting as some psychologists have recently proposed that the brain mechanisms underlying memory and future imagination are rooted in the same module, called the 'mental time travel' module.

    one interesting neuropsychological evidence for this proposal is that people with amnesia find it hard to imagine and simulate their future selves (

    however, i think the two versions of impact bias are different in one respect.

    the prospective impact bias is distorted both ways: you think you will be happier and sadder than you will actually be.

    but the retrospective impact bias, for the evolutionary reason you mentioned, tend to distort one way only, to make everything remembered better than they actually were.

    ps: a shorter dan gilbert video about impact bias and how it relates to happiness:

  9. is this topic related to the good social security system: safety net and the sophisticated free health and education system?