Centre for Confidence and Well-being

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Brief summary

The economics of happiness assesses well-being by combining economists' and psychologists' techniques and thereby using a wider definition of utility than is traditionally used by most economists. It does not seek to replace income-based measures of welfare but instead to complement them with broader measures of well-being. This approach is based on expressed preferences, revealed through a variety of survey research, rather than revealed choices based on consumption patterns.

The findings of behavioural economics, for example that individuals place greater value on losses than on gains, have implications for policy-makers in areas like health, the family and employment. However, all proponents of such a wider definition of well-being accept the significant difficulties associated with current measurement techniques and with properly understanding the routes of causation.

Monetary factors may be only one dimension of well-being but they remain important, with the ability to enhance well-being through for example: a clean environment; access to life-long education; improving health and longevity. However, as the survey evidence indicates rising GDP also produces negative externalities which have counter effects that can end up leaving many people and countries feeling no better off.

Ultimately it is the job of economics to maximise outcome utility and to adjust its recommendations accordingly, but both the maximisation and the recommendations will crucially depend on how utility is defined and, in turn, measured.

 

 
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