What Is The Economics Of Happiness?

What is the relation between money and happiness? The economics of happiness aims to answer such questions.
What is the relation between money and happiness? The economics of happiness aims to answer such questions.

What Is The Economics Of Happiness?

The economics of happiness deal with the theoretical and quantitative study of happiness, quality of life, well-being, life satisfaction, and other related concepts. The study is carried out by integrating economics with other fields including sociology and psychology. Happiness in economics had existed as a thought and not a theme until the 20th century. The relationship between money and happiness has attracted numerous studies, research, and experiments which have enabled well-being to be assessed through empirical measures.

Concept Of The Economics Of Happiness

The economics of happiness seeks to use econometric analysis to determine elements which affect human quality of life and well-being. Research undertaken in this field suggests that individuals in richer countries with efficient institutions are happier than people living in poorer countries with inefficient systems. At a particular point, however, growth in annual income does not translate to more happiness. Simply put, money leads to happiness if it used to lift people out of poverty. After that level has been passed, the relationship between happiness and monetary wealth is small. Happiness can either be measured through subjective and objective measures, and the results are increasingly being recognized as a reflection of public policy.


Some of the determinants used in measuring happiness include:

  • Personal Income- the ability of wealth to promote well-being is shortened once income reaches a subsistence level. More income no longer makes people happy where an individual feels overworked and he/she over-commutes.
  • Employment and unemployment- an employed individual tends to be happier than an unemployed person since the individual can fulfill personal responsibilities. Self-employed individuals report a higher level of happiness than those employed. Unemployed people often feel unfulfilled and frustrated with their level of consumption.
  • Relationships and Children- marriage positively impacts on happiness while divorce and loss of a spouse have negative effects. Children can either be a source of joy or misery. For a struggling family, they add to the financial burden while on the other hand, they represent a successful family. It is suggested that children will add to happiness until a certain number is reached in relation to income.
  • Health and Age- individuals with good health, tend to be happier and enthusiastic about their daily life while poor health brings about a pessimistic approach to life. Research has suggested that people are happier earlier on in their adult life and this state is negatively affected by biological changes and work pressures. After the mid-life crisis, however, happiness level begins increasing again.
  • Freedom and Control- democracy has been noted to foster well-being in people. Individuals are more prone to anxiety and unhappiness when faced with many lifestyle and consumer choices.

Uses Of Happiness Data

This data is particularly useful to governments as it can be used to predict the welfare effects of economic policies. The results can be used to determine the progress of individual nations while also comparing progress between countries. Across the world, organizations, communities, and governments are increasingly adopting happiness data as they strive to formulate policies to increase people’s well-being.


External factors have been shown to affect less than 3% of happiness levels. Internal factors including genetics and internal locus of control have been established as the primary elements of happiness. Some people have thus suggested that recognizing happiness as a metric is geared towards fulfilling political goals and other than that, it lacks any other meaningful use.


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