Money vs. Happiness

Context: The article studies the relationships between subjective well­being, which is narrowly defined to focus on economic well­being in India, based on the panel survey in India Human Development Survey (IHDS).

• Standard approach: based on decision utility – observations of decisions made supposedly by rational (utility maximising) agents.
• Subjective-Well Being (SWB) Approach: based on experience utility.
  • E.g. data collected under IHDS including questions like compared to seven years ago, would you say your household is economically doing the same, better or worse today?
  • It notes a broader view that is influenced by several factors other than income, assets, and employment, like age, health, caste, etc

Background: The question whether the rich are more sa­tisfied with their lives is often taken for granted, even though surveys, like the Gallup World Poll, show that the relationship bet­ween subjective well­being and income is often weak, except in low-­income countries in Africa and South Asia. Plausible reasons -

• Growth in income mostly has a transitory effect: on individuals’ reported life satisfaction, as they adapt to material goods.
• Relative income has more relation to wellbeing: earning more or less than others looms larger than how much one earns.
• Marginal effectivity: Low increase in life satisfaction once Gross Domestic Product(GDP) per capita exceeds $10,000 (in purchasing power parity).

Some features of Subjective-Well Being (SWB)

• Positive relationship with per capita expenditure
  • Higher expenditure results in higher SWB: E.g. the higher the expenditure in 2005 and the greater was the SWB in 2012.
  • Higher SWB will result in higher expenditure: higher well-being means better performance that will result in higher expenditure.
• Negative relationship with widening gap of aspirations and achievements (that result in resentment and frustration): sense of resentment and frustration will result in lower SWB.

Way forward: For improving well-being or happiness

• Focus on growth of expenditure or income.
• Check widening of the gap between aspirations and achievements.
• Provide economic opportunities to poor: by taxing rich.
• Balancing the focus on objective welfare as well as subjective well-being measure.