The preceding post is on the economics of happiness (EOH) literature. Econometrics is not a particular strength of mine but I do have a (possibly) naive query.
EOH identifies relationships between a self-described measure of happiness for individuals (in the studies I discuss it is often a ranking on a scale from 0-10) which is then regressed on lots of variables. Among these are measures of individual absolute income and measures of income relative to those elsewhere in society. The key finding as I understand it is that, in wealthy developed countries, it is the relative income variable that explains much of subjectively-assessed happiness (at least in time series and cross-country studies) rather than the absolute income level. That suggests that “keeping up with the Jones’s” or “other regarding behaviour” has strong effects on happiness rather than an individuals’s purchasing power.
That seems a plausible and not-at-all foolish view to me.
My inquiry however is whether that finding isn’t likely to be simply driven by the way data is assembled here. The happiness variable used is not an absolute happiness measure (e.g. how many “utils” of happiness the agent gets) but a scaled variable that ranks their happiness from 0-10. The determination of an individual’s self evaluation of their happiness (or quality-of-life) status on this scale will almost inevitably reflect the valuation of their happiness relative to others. If I feel I am at the bottom of society in terms of happiness I might choose 0 and, if I am materialistic and earn Bill Gate’s annual income I might rank myself very high on the scale. Won’t that sort of reasoning inevitably mean that in explaining happiness it is necessarily relative rather than absolute income measures that will always do most of the work?
When I think about this issue I can’t see an obvious way around it. You can’t easily elicit absolute measures of happiness or well-being. If you choose a ranking on a scale of 0-10 then it would seem inevitable that relative income rather than absolute income variables do the explaining in time series and cross-country studies. Indeed it is a bit of a puzzle that the same result does not arise in a some cross-section intra-national studies?
Or have I misunderstood the way the happiness measures are elicited? Or do the probit/logit statistical procedures (which do seem appropriate for these data sets) effectively deal with this problem?