PDF Ebook The Happiness Paradox: A Formal Explanation From Psycho-Economics
The paper has two main aims: to explain the happiness paradox, and to propose an economic approach which draws from psychology crucial arguments. By the ‘happiness paradox’ is meant a phenomenon that has become apparent in the US and other advanced countries during recent decades. Well-being, as measured by a self-reported rating of one’s happiness, or by other objective indices of mental health, does not improve, or it even deteriorates, whilst income per head, which is the main proxy for material well-being, displays a distinct rising trend. The paradox is reinforced by the fact that people still strive to earn more income by working harder and for longer hours. These facts are paradoxical because economists would expect higher income to mean greater well-being, and that more wealth would enable people to exploit technical progress in order to reduce their working time.
In order to explain the paradox, this paper both adopts the economic approach, which assumes that individuals attempt to maximise their well-being under resources constraints, and draws crucial arguments from social, clinical, and cognitive psychology. This deep integration between economics and psychology can be coined with the term psycho-economics. In this paper, in fact, economics does not simply borrow stylised facts on the human decision process from psychology and use them as starting hypotheses for analysis of the economic consequences, as ‘behavioural economics’ attempts to do. Psychology will also contribute to explanation of the origin of the human decision process, and of the motivations, even outside unconsciousness, that underly it (Pugno 1994). Psycho-economics thus undermines the representation of homo economicus, but it also opens the way for new research that combines depth of understanding with viable prescriptions.
The happiness paradox will be explained on the assumption that well-being is due not only to income and consumption, as economists tend to believe, but also to close personal relationships, as emphasised by social, developmental, and clinical psychology. Because there is various evidence for a worrying deterioration on the quality of the relationships within the family and within social community, improvements in material living standards may not be sufficient to increase overall well-being.
The novelty for economics is that interpersonal relationships are important not simply because they are instrumental for the division of labour, and for goods exchange, but especially because they are the final goal for well-being. This extension of economic analysis, however, poses new problems as to how these particular goods that arise within human relationships should be treated.
On this point, another crucial contribution of psychology, with the help of neuroscience, is its finding that human motivations arise largely unintentionally through emotions, affects, and feelings, especially where relationships with others are concerned. Furthermore, an authoritative strand in the psychology literature argues that affects toward the others display patterns shaped by primary relationships during infancy. Disappointments in primary and subsequent relationships may explain both people’s vulnerability to the impelling materialism of modern social models, and their profound unsatisfaction. These arguments will solve the paradox, but they will also highlight a case of rationality failure.
The paper is organised as follows: Section 1 shows the empirical relevance of the well being paradox; Section 2 outlines the two main explanations for the paradox and indicates their shortcomings; Section 3 provides the alternative explanation by referring each single argument to the appropriate economic and psychology literature; Section 4 sets out the formal model; Section 5 draws the conclusions, while the appendix provides the relevant proofs.
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PDF Ebook The Happiness Paradox: A Formal Explanation From Psycho-Economics
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