How are life satisfaction ratings related to living standards evaluations?

 

It is well known that in wealthy countries, further improvement of average incomes has only a small impact on average life satisfaction. Diametrically opposed explanations have been offered.

On the one hand, there are those who say that if rising incomes have little effect on average life satisfaction, that must mean that their apparent impact on living standards is a mirage – rising incomes do not count as progress.

On the other hand, there are those who say that average life satisfaction numbers are garbage – you can’t expect to get useful information by asking people to rate their satisfaction with life on a 10-point scale. They say that rising average incomes provide an accurate picture of progress.

In my view, those opposing explanations are both unhelpful to an understanding of the relationship between living standards and life satisfaction. In my book, Freedom, Progress, and Human Flourishing, I explain that rising incomes result in actual improvements in living standards, and count as progress because that is what people aspire to have. Since self-direction is integral to human flourishing, it is obvious that progress is inextricably linked to conditions that enable individuals to meet their aspirations more fully. In the book, I also explain why I think average life satisfaction is an appropriate measure of psychological well-being at a national level. I suggest that psychological well-being, along with wise and well-informed self-direction, is one of several basic goods that a flourishing human could be expected to have.

The moving benchmark problem.

The failure of life satisfaction to reflect improved living standards is explained as follows in my book:

“The happiness surveys behind this puzzle, often referred to as the Easterlin puzzle, ask respondents to rate their lives relative to benchmarks such as the best possible life. Let us assume that when a person in a high-income country, call him Bill, answered that question in 1990, and he gave a rating of 8/10 for his life. Since then, Bill’s income has increased at about the same rate as the average for the country in which he lives, and there have been no abnormal changes in the circumstances of his life. In January 2020 … he again rated his life as 8/10. …

Bill’s income has risen, but his rating of his life has not risen.

The problem is that the survey prompted Bill to rate his life against a moving benchmark. Bill’s view of what constitutes the best possible life is likely to have risen over time. The people he sees living such a life have obtained access to better communication technology, and other things that have potential to enhance the quality of life. If you ask people to rate their current lives relative to a benchmark that is moving upwards over time, measurement error is inevitable.”

Ways to avoid the moving benchmark problem include the ACSA approach previously discussed on this blog (here and here). For reasons best known to themselves, happiness researchers have not shown much interest in using that approach to test the extent to which life satisfaction measures are distorted by moving benchmarks.

Living standards comparisons

The moving benchmark problem does not arise when people are asked how their standard of living compares with that of their parents when they were about the same age. Surveys of that kind have tended to provide information consistent with perceptions of ongoing progress with rising incomes in wealthy countries.

There is no plausible reason why such inter-generational comparisons should be viewed as less credible than life satisfaction ratings, or vice versa. As I see it, they are cognitive evaluations of different things. The intergenerational comparisons are measuring perceptions of progress, and the life satisfaction ratings are measuring current psychological well-being.

Merging life satisfaction and living standards evaluations

In order to obtain a better understanding of the linkage between perceptions of progress and current life evaluations, it is necessary to bring those different cognitive evaluations together in some way. That has been made possible by inclusion in the latest round of the World Values Survey of a question asking respondents whether their living standards are higher, lower, or about the same as those of their parents when they were about the same age. The graphs shown above were prepared using the excellent Online Data Analysis facility of the World Values Survey. Information is shown for the United States and Australia, but similar pictures emerge for other high-income countries.

The most obvious point illustrated by the graphs is that people tend to be much less satisfied with their lives if they perceive that their living standards are lower than those of their parents at a comparable age. Their perceptions that their living standards have fallen tends to make them feel grumpy about life.

The second point to emerge is that the life satisfaction ratings of those who perceive that their living standards are better than those of their parents are not much higher than for those who perceive that their living standards are about the same as those of their parents. Their perceptions of progress are not reflected to any great extent in their satisfaction current lives. That result is consistent with my view that life satisfaction is a poor indicator of the extent to which people meet their aspirations for higher living standards.

Implications

Perceptions of change in living standards that emerge from intergenerational comparisons are related to the recent history of economic growth in different countries. The greatest percentage perceive that their living standards are higher than their parents in countries that have sustained high rates of growth in per capita GDP over several decades. Of the 54 countries for which data are available, Vietnam has the greatest percentage in that category (90%) and Iraq has the lowest (21%). The corresponding percentages for Australia and the U.S. are 56% and 48% respectively.

Percentages who perceive that their living standards are lower than their parents follow a broadly similar pattern, but in most countries are within the range of 10% to 25%. Of the 54 countries, Zimbabwe is the only one where more than half of respondents perceived that their standard of living was lower than that of their parents. The corresponding percentages for Australia and the U.S. are 15% and 19% respectively.

The age structure of people who perceive themselves to be worse off than their parents suggests that this source of grumpiness is likely to pose a greater problem in Australia and the U.S. in the years ahead. The incidence is lowest among the 65+ age group (7.6% for Australia and 8.4% for the U.S.). The highest incidence in Australia is in the 25-34 age group (20.1%) and in the U.S. in the 35-44 age group (26.4%).

Conclusions

Average life satisfaction provides useful information on psychological well-being at a national level, but is a poor measure of the extent to which people are meeting their aspirations for higher living standards. As expected, people who perceive their standard of living to be higher than that of their parents, do not rate their life satisfaction much higher than those who perceive their standard of living to be about the same as that of their parents. However, people who perceive their standard of living to be lower than that of their parents have markedly lower life satisfaction than the other groups. The percentage of grumpy people in countries such as Australia and the U.S. seems set to rise in the years ahead unless opportunities improve for young people to meet their aspirations for higher living standards.

How useful is the WELLBY concept in assessing the benefits and costs of alternative policies?

 

There are good reasons why public policy discussions often revolve around the benefits and costs of alternative policies. Discussions that begin with the consideration of rights often require participants to acknowledge conflicting rights and to weigh up consequences in a search for the principles that can most appropriately be applied.

For example, consider what followed when I suggested recently in a discussion of the merits of lockdowns to counter the spread of COVID19 that such policies should be assessed against the principle that individuals have a right to direct their own flourishing, provided they do not interfere with the similar rights of other people. The latter part of that assertion implies a willingness to consider whether infected people who spread disease are interfering with the rights of others. At an early stage of the discussion, I acknowledged that it would be a step too far to insist that everyone has the right to recklessly endanger the lives of others. I argued that there should nevertheless be a presumption in favour of freedom, and that those who advocate restriction of freedom should be required to demonstrate that the benefits clearly exceed the costs.

That illustrates how the discussion of benefits and costs tends to rule the roost in civilized discussions of public policy. An exchange of different views about rights can be enlightening, but endless repetition of conflicting assertions about rights does not qualify as civilized discussion in my view.

A WELLBY (or Wellbeing Year) is equal to a one-point increment on a 10-point life satisfaction scale. If you assessed your level of life satisfaction as 8/10 in 2019 and 7/10 in 2020, that would be a decline of one WELLBY.

I began thinking about the WELLBY concept while considering how it is possible to measure the costs and benefits of lockdowns, but in this article, I will focus on the usefulness of that concept rather than on the question of whether benefits of lockdowns could ever exceed the associated costs.

Assessing the psychological cost of lockdowns

Indicators of subjective well-being are obviously relevant in assessing the psychological costs associated with policies that require people to stay at home. Available evidence suggests that lockdowns caused a decline in average life satisfaction of about half a point in the UK and similar countries in the
period to March 2021. On that basis, Paul Frijters, Gigi Foster, and Michael Baker estimate that lockdowns cause loss of life satisfaction to the general public in the U.K. of 41,667 WELLBYs per million citizens for each month of lockdown. This estimate is in Chapter 5 of their book, The Great Covid Panic, 2021.

I think that is an appropriate use of the WELLBY concept. If anyone knows of a better way to assess the psychological costs of lockdowns, I would be interested to know what it is.

Frijters, Foster, and Baker incorporate several other items in their assessment of the costs of lockdowns. I will consider one of those later, but I want to turn now to use of the WELLBY concept in the assessment of the main hypothetical benefit of lockdowns, namely lives potentially saved.

Assessing the value of a life saved

Richard Layard and Ekaterina Oparina have published a provocative article using a WELLBY approach to assess the monetary value of preventing the loss of one year of human life (Chapter 8 of World Happiness Report, 2021).

Layard and Oparina begin their discussion by observing that the average WELLBY is 7.5 in advanced countries. On that basis, they claim that preventing the loss of one year of the life of one person saves 7.5 WELLBYs.

The authors draw upon information on the relationship between income and life satisfaction in order to assess the monetary value of that loss. After some discussion of relevant research, they suggest that a coefficient of 0.3 is an appropriate measure of the impact on life satisfaction of a unit change in absolute log income. With average income of $30, 000, the loss of $1 is equivalent to 1/100,000 WELLBYs (0.3/30,000). It follows, they suggest, that “we” should be willing to pay up to around $750, 000 to save a year of life (7.5 WELLBYs).

Layard and Oparina point out that the $750, 000 would be shared over the whole population. Nevertheless, it still seems an extremely large sum to pay to prolong a life by just one year.

One possible source of error is that life may have no value for people with very low life satisfaction, for example those with a rating less than 2/10. If you assume that a life year is equivalent to 5.5 WELLBYs (7.5 minus 2.0), the estimated sum that “we” should be willing to pay to prolong life by one year is reduced to $550, 000. That still seems implausibly high.

The estimate could be further reduced by taking account of the fact that the people who are most vulnerable to COVID19 often have pre-existing ailments that would tend to reduce their life satisfaction, and many of those in nursing homes would be unlikely to live another year in any case.

However, let us return to the question of whether $550,000 is a plausible estimate of what “we” should be prepared to pay to prolong by one year the life of a person with an average life satisfaction rating. An alternative way to approach the issue of determining the monetary value of a year of life is to consider estimates of the impact of changes in healthy life expectancy on average life satisfaction. Regression analysis suggests that the addition of one year to healthy life expectancy adds only 0.033 to average life satisfaction (Table 2.1, World Happiness Report, 2019). The income loss providing an equivalent loss of life satisfaction is only $3,300 (0.033*100,000). That strikes me as an implausibly low estimate of the value of a year of life.

My view of what is a plausible estimate of the value of one year of life is not based solely on my own gut feelings. The assumed value of a life year in cost-benefit analysis typically ranges from $50, 000 to $250, 000. Those assumptions are based on surveys asking people how much they would be willing to pay to extend their lives and estimates of amounts people need to be paid to accept jobs involving greater risks to life.

Estimates of the value of a year of life within that range seem to be broadly consistent with community expectations. Some groups may lobby for lives to be valued more highly in assessing whether life-saving drugs should be subsidized by governments. However, I don’t see large numbers of people suggesting that they would be willing to pay higher taxes to fund that.

There seems to me to be a fundamental problem in attempting to assess the value of a life-year from the relationship between average income and average WELLBYs. As I explain in Freedom, Progress, and Human Flourishing, psychological well-being is just one of the basic goods of a flourishing human. When you ask individuals open-ended questions about how they are faring, their responses are not confined to the extent that they are “satisfied” with life. They are likely to talk about whether they are achieving their aspirations, the state of their health and their personal relationships. If you ask a person who already has high life satisfaction why they aspire to earn a higher income, they are not likely to claim that they expect a higher income to enable them to become more satisfied with their own life. They are more likely to say that they want to put some money aside for various reasons, for example to assist with education of children or grandchildren, or to have something to fall back on in the event of illness.

If an individual is faced with a decision about whether to use accumulated wealth (or to mortgage their house) to purchase an expensive drug that might prolong their life for a year, the quality of that extended life (WELBYs) is not the only factor that they are likely to consider. The choice they make may well give consideration to their desire to improve opportunities available to the next generation of their family. There is an intergenerational choice involved in placing a value on an additional year of life.

What value should be placed on the lives of potential humans?

Frijters, Foster, and Baker include among the costs of lockdown the shutting down of the in-vitro fertilization (IVF) program during lockdowns in the UK because it was deemed to be a nonessential service. This resulted in about 30 fewer IVF births per million citizens per month of lockdown.

The cost of disruption of the IVF program is not critical to the authors’ conclusion that the cost of lockdowns exceed the benefits. Nevertheless, in my view there is a strong case for it to be taken into account. Potential parents clearly place a high value on the new lives that the program makes possible.

However, the methodology which Frijters, Foster, and Baker use to estimate the cost of disruption of the IVF program is a straightforward application of the WELBY concept to value lives. They calculate that each of these potential humans could be expected to enjoy 480 WELLBYs during his or her life – each is assumed to have a value equal to 6 WELLBYs and to live on average for 80 years. With the loss of 30 IVF babies per month, that amounts to the loss of 14,400 WELLBYs worth of human well-being per month per million citizens.

The reasoning is impeccable if you accept the utilitarian assumptions associated with use of the WELLBY concept to measure the value of a human life. Within that framework, if government policies prevent potential humans from being born, that diminishes the sum of human happiness by the amount of happiness they would have enjoyed during their lifetimes.

I have already indicated that I don’t accept that people value their own lives exclusively on the basis of WELLBYs. However, if I have not yet persuaded you to reject the WELLBY approach to evaluation of lives, you may wish to consider the following possible outcome of applying that approach.

Let us suppose that a government is considering a ban on all forms of contraception and seeks the services of some utilitarian advocates of maximization of human happiness to evaluate the costs and benefits of the proposal. It seems reasonable to predict that the utilitarians would conclude that the additional births resulting from the policy change would result in a large net increase in WELLBYs, and therefore an increase in the sum of human happiness. The more, the merrier they might say!

Conclusions

The WELLBY concept has a useful role to play in evaluation of some policies that have an impact on psychological well-being.

However, the valuation of lives according to the number of WELLBYs individuals might enjoy seems to be at variance with the approach that individuals take in making choices in relation to extension of their own lives. That approach to valuing lives is widely at variance with the approach most people in advanced countries adopt in considering the value of potential lives of the many additional humans that they could bring into the world if they felt inclined to do so. It counts the lives of potential people as having equal value to the lives of the living.

The WELLBY approach to valuation of human life should be rejected.

Postscript

A survey conducted by UBS has provided relevant information on the proportion of wealth that investors are willing to sacrifice for additional years of life. The survey covered 5,000 wealthy investors in 10 countries. On average, those with financial wealth in the $1 to $2 million range indicated that they were willing to give up 32% of their wealth for an additional decade of healthy living. That may seem a lot, but amounts to only $32,000 to $64,000 per annum when spread over 10 years.

Those figures are far lower than the $750,000 (discussed above) that an application of the WELLBY approach to life evaluation has suggested that “we” should be willing to pay to save a year of life.

What kind of being are you?

 

Self-reflection tells you that you are a conscious being that is aware of its own existence in the real world. You are aware of having a mind and a body. Since you are a thinking being, you have probably worked out that you exist even when you are not conscious. You have probably also noticed that even people who claim to believe that the physical world is an illusion tend to behave as though they believe it is real. For example, you see them walking through doors rather than walking through walls.

Does the existence of your body indicate that you are an entity. If I could see you, I would affirm that you look like a being that has a distinct and independent existence – that is, an entity.

Do you see yourself as an entity? You may think of yourself as an entity, but how do you think of yourself while you are observing your own thoughts?

You could think of yourself as an observer watching your thoughts pass by like leaves on a stream. Some of the thoughts might be about yourself. If the thought “I am a thinking entity”, passes your mind, you might observe, “I am having the thought that I am a thinking entity”. That is an interesting observation. You can’t deny that you are thinking.

However, if you are an entity, how can you be both the observer and the object that you are observing? Could you be two entities? I don’t think so. The observer, who is you, does not exist independently of the object who is observed, who is also you.

Richard Campbell suggests a way out of this dilemma in his book, The Metaphysics of Emergence. Drop the assumption that you are a fixed, given entity. The alternative he suggests is to perceive yourself as a complex process system. That enables you to perceive of radical reflexivity as a process. He writes:

“If the assumption that there is a fixed, given entity called ‘the self’ …  is rejected, the way is open to understand consciousness as a flow: a complex, emergent and interactive process which is radically reflexive”.

As I discussed in a previous article about Campbell’s book, our observations of the world tell us that many other animals are also aware of their surroundings. We have no problem in understanding that their awareness emerged or evolved to help them to survive and reproduce. Our human consciousness is just another step in that evolutionary process. Radical reflexivity - awareness of our own awareness - has emerged to help us to flourish as individuals in the cultures in which we live.

Campbell suggests that the flow of consciousness is analogous to a river maintaining its identity as it flows though different places. Your understanding of who you are is informed by the flow of your consciousness through time. In other words, your sense of identity is informed by your autobiographical memories. Campbell explains that this sense of identity also involves an element of projection into the future:

“I am a complex process system continually projecting myself out of my past into my future, my sense of myself necessarily involves my ‘has been’ and my ‘not yet’.”

As you think about your “not yet”, you might imagine a future that is different than your past. That might be just wishful thinking, or you might be considering what options are available to achieve a vision that you have for your own future.

Conclusion

You are a being that is consciously aware of its own existence in the real world. You may think of yourself as an entity – a being that has a distinct and independent existence. However, that perception is at odds with the fact that you can observe yourself thinking. A single entity cannot be both an observer and the object of observation. It makes more sense to view yourself as a complex process system.