Surveys undertaken by the Pew Research Centre enable comparisons to be made between ratings of quality of life at the present time and ratings of quality of life five years ago. The results for the U.S. (here) indicate that while respondent’s average ratings of current quality of life had moved up and down by small amounts when asked at various times over the last 40 years, they consistently reported that their quality of life was substantially worse five years ago - indicating that they perceived that they had experienced ongoing improvements in the quality of their lives.
These results suggest that people can perceive that the quality of their lives is improving even though their reports of quality of life at different points of time indicate that there has been no increase. Some people might suggest that this means that people have faulty memories of the quality of life they enjoyed in the past. I acknowledge that memories can be faulty, but I see no reason why people should systematically view the past as having been worse than the present. On the other hand, I can think of a good reason why current reports of quality of life may not show much change over time in the face of objective evidence of improvements in standard of living.
The use of survey information to measure the current quality of life involves the implicit assumption that when people rate their quality of life they do so relative to absolute standards. Respondents in the Pew survey are prompted to think in terms of a ladder of life in which the top step represents the best possible life and the bottom step represents the worst possible life. The use of successive surveys to measure change in the quality of life entails the assumption that perceptions about what constitutes the best possible life and the worst possible life remain fixed over time.
When you think about this, however, how can it be possible for anyone in a relatively high-income country to know what the best possible life, or the worst possible life, might be like throughout their own life-time? If you asked someone to rate how satisfied they were with life in the 1940s they would not have had much idea of the kind of life they might be able to live in 60 years time. They would not have known that many of the household appliances and communications devices that we now have would be within reach within their own life-time. They might have wished that such things could be invented and made affordable – just as I wished as a child in the 1950s that I could have a 2 way wrist radio like the one Dick Tracey had – but I don’t think such things would have been contemplated as actually attainable.
It is widely accepted among happiness researchers that in high income countries increases in standards of living may not translate to increases in happiness because aspirations tend to rise as incomes rise. I am not sure that many have realized, however, that if this process involves a change in perceptions about the best possible life it is changing the scale against which people are assessing their quality of life. Thus a person who felt that her quality of life had improved over time might report ratings of her quality of life at different points in time which indicated that she had stayed on the same rung of the ladder. The apparent conflict of perceptions has occurred because the ladder has shifted upwards.
If our aim is to use surveys to measure of happiness, as an emotion, it may be appropriate for the ladder (measurement scale) to move upward as perceptions change about the best possible life. If we are attempting to measure quality of life, however, we should recognise that an upward movement of the ladder - which occurs because of a change in perceptions of the best possible life - is itself evidence of improvement in the quality of life. In my view we should accept what people say when they report ongoing improvements in the quality of their lives and also to accept that this will not necessarily make them feel any happier than in the past.
In my next post I explore the possibility of using perceptions about changes in quality of life to construct a chain index showing how the perceived quality of life has changed over time.
Friday, August 8, 2008
Monday, August 4, 2008
Why does Rudd persist in misrepresenting Hayek?
In “The Australian” today (4 August 2008) Australia’s prime minister, Kevin Rudd again misrepresents the views of Friedrich Hayek. He also did it before becoming elected (here).
After stating that he believes in a compassionate society, Rudd writes:
“That is why we explicitly reject Hayek’s view that society has no obligation to others who are unknown to us and his preparedness to allow fundamental social institutions such as the family to fend entirely for themselves against unrestrained market forces”.
I have read enough of what Hayek wrote to know that he would never write anything like: “society has no obligation to others who are unknown to us”. That statement makes no sense. It seems to suggest that “society” exists apart from the people who comprise it. Rudd might believe this, but Hayek was certainly opposed to that view.
Hayek recognised explicitly that in “a highly mobile open society, an increasing number of people are no longer closely associated with particular groups whose help and support they can count on in the case of misfortune”. He states:
“The assurance of a certain minimum income for everyone ... appears not only to be a wholly legitimate protection against a common risk to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born” (Law, Legislation and Liberty, V 3, 55).
So, why does Rudd persist in misrepresenting Hayek? I don’t know. Perhaps he is suffering from a learning disability.
After stating that he believes in a compassionate society, Rudd writes:
“That is why we explicitly reject Hayek’s view that society has no obligation to others who are unknown to us and his preparedness to allow fundamental social institutions such as the family to fend entirely for themselves against unrestrained market forces”.
I have read enough of what Hayek wrote to know that he would never write anything like: “society has no obligation to others who are unknown to us”. That statement makes no sense. It seems to suggest that “society” exists apart from the people who comprise it. Rudd might believe this, but Hayek was certainly opposed to that view.
Hayek recognised explicitly that in “a highly mobile open society, an increasing number of people are no longer closely associated with particular groups whose help and support they can count on in the case of misfortune”. He states:
“The assurance of a certain minimum income for everyone ... appears not only to be a wholly legitimate protection against a common risk to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born” (Law, Legislation and Liberty, V 3, 55).
So, why does Rudd persist in misrepresenting Hayek? I don’t know. Perhaps he is suffering from a learning disability.
Wednesday, July 30, 2008
How did changes in attitudes to inequality affect happiness in Poland?
This post continues my ruminations about the effect that beliefs about income inequality may have on the happiness of people who hold those beliefs. Previous posts can be found here.
In order to study this it would be nice to have a natural experiment in which the population of a country began with fairly positive beliefs about inequality and then changed those beliefs radically over a couple of years. In order to draw conclusions we would need survey information to document the change in beliefs that occurred, together with information on happiness levels, income inequality and per capita income levels.
It just so happens that such information is available for Poland. A study by Irena Grosfeld and Claudia Senik shows that a change in attitudes toward inequality, which occurred around 1997, was associated with a sharp decline in satisfaction with the current economic situation and some decline in satisfaction with personal living standards despite continued economic growth (‘The emerging aversion to inequality: evidence from Poland 1992-2005’, Discussion Paper 3484, IZA, 2008, here).
Around 1997 there was a sharp drop in the proportion of people agreeing with the statement that inequalities of income are necessary for economic progress and a rise in the proportion agreeing that inequalities of income are too large in Poland.
The statistical analysis actually suggests that income inequality (as measured by the Gini coefficient) had a positive effect on satisfaction with the economic situation and satisfaction with personal living standards in the period from 1992 to 1996. The authors argue that inequality was initially interpreted as “an opening of new opportunities” following the fall of communism. It is somewhat easier to understand how this might occur in the light of the results of other research by Claudia Senik (discussed here) which suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals tends to rise, rather than fall, when the income of their reference group -people with the same skills and occupation - increases. Her explanation is that in these countries people consider that their own future prospects to be better when the income of their professional peers rises.
Why did the change in attitudes toward inequality occur? Grosfeld and Senik suggest that “the turning point in tolerance for income inequality seems to come with the increasingly wide perception that the process that generates income distribution is itself unfair” (p17).
That suggests to me that a change occurred from a situation where the economic system was commonly viewed as a positive-sum game – potentially providing benefits to all participants - to one in which it was viewed as a zero-sum game – where the enrichment of some was perceived as being at the expense of others. Interestingly, the perception of an economy as a zero sum game can be an accurate perception when the distribution of income is influenced to a large extent by political favouritism.
All this leads me to wonder whether there is any survey evidence that people who perceive life as a positive sum game are generally happier that those who view it as a zero-sum game.
In order to study this it would be nice to have a natural experiment in which the population of a country began with fairly positive beliefs about inequality and then changed those beliefs radically over a couple of years. In order to draw conclusions we would need survey information to document the change in beliefs that occurred, together with information on happiness levels, income inequality and per capita income levels.
It just so happens that such information is available for Poland. A study by Irena Grosfeld and Claudia Senik shows that a change in attitudes toward inequality, which occurred around 1997, was associated with a sharp decline in satisfaction with the current economic situation and some decline in satisfaction with personal living standards despite continued economic growth (‘The emerging aversion to inequality: evidence from Poland 1992-2005’, Discussion Paper 3484, IZA, 2008, here).
Around 1997 there was a sharp drop in the proportion of people agreeing with the statement that inequalities of income are necessary for economic progress and a rise in the proportion agreeing that inequalities of income are too large in Poland.
The statistical analysis actually suggests that income inequality (as measured by the Gini coefficient) had a positive effect on satisfaction with the economic situation and satisfaction with personal living standards in the period from 1992 to 1996. The authors argue that inequality was initially interpreted as “an opening of new opportunities” following the fall of communism. It is somewhat easier to understand how this might occur in the light of the results of other research by Claudia Senik (discussed here) which suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals tends to rise, rather than fall, when the income of their reference group -people with the same skills and occupation - increases. Her explanation is that in these countries people consider that their own future prospects to be better when the income of their professional peers rises.
Why did the change in attitudes toward inequality occur? Grosfeld and Senik suggest that “the turning point in tolerance for income inequality seems to come with the increasingly wide perception that the process that generates income distribution is itself unfair” (p17).
That suggests to me that a change occurred from a situation where the economic system was commonly viewed as a positive-sum game – potentially providing benefits to all participants - to one in which it was viewed as a zero-sum game – where the enrichment of some was perceived as being at the expense of others. Interestingly, the perception of an economy as a zero sum game can be an accurate perception when the distribution of income is influenced to a large extent by political favouritism.
All this leads me to wonder whether there is any survey evidence that people who perceive life as a positive sum game are generally happier that those who view it as a zero-sum game.
Monday, July 28, 2008
Do good decisions always make us happy?
This may seem like an odd question. Many people would say that it must be true by definition that when we make good decisions we are happier. It seems to me, however, that this view is too simplistic.
In order to bring the discussion down to earth consider the case of a person who decides to devote more of her time to earning income and less to leisure. If you ask an economist whether she has made a good decision there is a fairly high probability that his response would be that along the lines of that suggested by Irving Fisher (1892) namely that individuals reveal their utility through their actions. He might say: “It is reasonable to presume that the combination of work and leisure that she has chosen makes her happier than the available alternatives”.
An alternative approach, favoured by psychologists and an increasing number of economists, would be to actually ask the person how happy (or how satisfied with life) she was both before and after she had made the decision to increase her hours of work. If her responses implied she was less happy – after the researcher had made allowances for other changes in her life in the intervening period – this approach would suggest that she had made a bad decision. In this instance this approach seems to suggest that the economist’s presumption of rational choice is wrong.
However, before rushing to judgement, consider a slightly different situation. In this case, rather than deciding to take on more paid work, the person concerned decides to have a child. Our conventional economist’s response would be the same – her decision to have a child implies that she is happier with this option than with the alternatives available. Our psychologist’s survey is likely to show that she is less happy (or less satisfied with life) than she was before giving birth. (There is evidence from many surveys that people who have children living at home are usually less happy than those in similar circumstances who do not have children.)
So, does this mean that our decision-maker made a bad decision by deciding to have the child? It could mean that, but I think that interpretation would usually make no sense at all. When women choose to have children they rarely regret their choices even though the sacrifices they make in looking after their “little bundles of joy” are sufficient to cause them to report lower happiness. By commonly accepted standards these are usually good decisions – they are sensible and rational.
Other examples can be cited of sensible and rational decisions that do not add to happiness, or only add to happiness for a short time. In the case of marriage, there is typically an increase in happiness for only a year or two before and after the event and then happiness returns to its previous level. Apparently cohabitation usually results in a smaller temporary increase in happiness than does marriage. Since separation and divorce have negative effects on happiness the whole idea of entering into relationships would seem problematic if viewed purely in terms of the happiness that people can reasonably expect based on the experiences of others.
My point is that there is more to life than self-reported happiness or life satisfaction. In his little book, “Happiness” (2005), Daniel Nettle identifies three levels of happiness: momentary feelings; judgements about feelings; and quality of life (flourishing or fulfilling one’s potential). Surveys of happiness and life satisfaction reflect the first two elements, but they usually fail to take account of the third element.
We seem to have been bombarded over the last year or so by arguments that the decisions people make cannot necessarily be presumed to make them happy. See here, here, and here for my discussion of books pushing such arguments. I think it is about time there was more recognition that good decisions do not always make people happy.
This point can be illustrated by returning to my first example of the person who was less happy after deciding to increase her hours of work. Isn’t it possible that this decision might have been a good one? How do we know that the person concerned had not decided to make some sacrifices in the short term in order to promote some longer term goal such as being able to afford to have children or to being able to give her children a better education? Happiness and life satisfaction indicators do not tell us the extent to which people are fulfilling the goals that are important to them.
In order to bring the discussion down to earth consider the case of a person who decides to devote more of her time to earning income and less to leisure. If you ask an economist whether she has made a good decision there is a fairly high probability that his response would be that along the lines of that suggested by Irving Fisher (1892) namely that individuals reveal their utility through their actions. He might say: “It is reasonable to presume that the combination of work and leisure that she has chosen makes her happier than the available alternatives”.
An alternative approach, favoured by psychologists and an increasing number of economists, would be to actually ask the person how happy (or how satisfied with life) she was both before and after she had made the decision to increase her hours of work. If her responses implied she was less happy – after the researcher had made allowances for other changes in her life in the intervening period – this approach would suggest that she had made a bad decision. In this instance this approach seems to suggest that the economist’s presumption of rational choice is wrong.
However, before rushing to judgement, consider a slightly different situation. In this case, rather than deciding to take on more paid work, the person concerned decides to have a child. Our conventional economist’s response would be the same – her decision to have a child implies that she is happier with this option than with the alternatives available. Our psychologist’s survey is likely to show that she is less happy (or less satisfied with life) than she was before giving birth. (There is evidence from many surveys that people who have children living at home are usually less happy than those in similar circumstances who do not have children.)
So, does this mean that our decision-maker made a bad decision by deciding to have the child? It could mean that, but I think that interpretation would usually make no sense at all. When women choose to have children they rarely regret their choices even though the sacrifices they make in looking after their “little bundles of joy” are sufficient to cause them to report lower happiness. By commonly accepted standards these are usually good decisions – they are sensible and rational.
Other examples can be cited of sensible and rational decisions that do not add to happiness, or only add to happiness for a short time. In the case of marriage, there is typically an increase in happiness for only a year or two before and after the event and then happiness returns to its previous level. Apparently cohabitation usually results in a smaller temporary increase in happiness than does marriage. Since separation and divorce have negative effects on happiness the whole idea of entering into relationships would seem problematic if viewed purely in terms of the happiness that people can reasonably expect based on the experiences of others.
My point is that there is more to life than self-reported happiness or life satisfaction. In his little book, “Happiness” (2005), Daniel Nettle identifies three levels of happiness: momentary feelings; judgements about feelings; and quality of life (flourishing or fulfilling one’s potential). Surveys of happiness and life satisfaction reflect the first two elements, but they usually fail to take account of the third element.
We seem to have been bombarded over the last year or so by arguments that the decisions people make cannot necessarily be presumed to make them happy. See here, here, and here for my discussion of books pushing such arguments. I think it is about time there was more recognition that good decisions do not always make people happy.
This point can be illustrated by returning to my first example of the person who was less happy after deciding to increase her hours of work. Isn’t it possible that this decision might have been a good one? How do we know that the person concerned had not decided to make some sacrifices in the short term in order to promote some longer term goal such as being able to afford to have children or to being able to give her children a better education? Happiness and life satisfaction indicators do not tell us the extent to which people are fulfilling the goals that are important to them.
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