What are we learning from the life satisfaction literature?

The recent availability of cross-sectional and longitudinal survey data on life satisfaction in a large number of countries gives us the opportunity to verify empirically (and not just to assume) what matters for individuals and what economists and policymakers should take into account when trying to promote personal and societal well-being. We now have ample evidence, generally robust to different cultural backgrounds, on the effects of some important happiness drivers (income, health, unemployment, marital status, etc.) which can be considered “quasi-stylized facts” of happiness. If economic policies, for many obvious reasons, cannot maximize self-declared life satisfaction as such, we are nonetheless learning a lot from these findings. In particular, results on the relevance of relational goods, on the inflation/unemployment trade-off in terms of welfare and, more in general, on the measurement of the shadow value of non-market goods obtained with life satisfaction estimates are conveying relevant information about individual preferences and what is behind utility functions. Such findings suggest that the anthropological reductionism characterizing most economic models can be misleading and that target indicators of economic policies have to be refocused if we want to minimize the distance between economic development and human progress.     

Choices, situations, and happiness

This article explores some conceptual issues in the study of well-being using the traditional economic approach of inferring preferences solely from choice behavior. We argue that choice behavior alone can never reveal which situations make people better off, even with unlimited data and under the maintained hypothesis of 100% rational choice. Ancillary assumptions or additional forms of data such as happiness measures are always needed. With such ancillary assumptions and additional data, however, the use of revealed preference to study well-being can be significantly improved, so that the choices people make can jointly identify preferences, mistakes, and well-being.     

Maximising Happiness?

The measurement of individual happiness challenges the notion that revealed preferences only reliably and empirically reflect individual utility. Reported subjective well-being is a broader concept than traditional decision utility; it also includes concepts like experience and procedural utility. Micro- and macroeconometric happiness functions offer new insights on determinants of life satisfaction. However, one should not leap to the conclusion that happiness should be maximized, as was suggested for social welfare function maximization. In contrast, happiness research strengthens the validity of an institutional approach, such as reflected in the theory of democratic economic policy.     

On the demand for information

Most previous research on the economics of information has been based on the expected utility hypothesis and Bayesian learning. Yet there is experimental evidence that decision makers do not always maximize expected utility and that human learning is not always consistent with Bayes' rule. Using a two-period model, this paper examines the valuation of information as well as the demanf for information in the broader context of a state preference approach under an ordinal representation of preferences. In particular, it is not assumed that the decision maker is Bayesian, nor that he behaves in a way consistent with the expected utility hypothesis. In this general framework, the value of information is defined and analysed. Also, under active learning, the optimal allocation of information gathering activities is discussed. Behavioural properties of the demand for information are derived making use of a compensation function. Implications of the results for measuring the value of information and for the economic analysis of learning activities are discussed.     

Increasing consumer well-being: risk as potential driver of happiness

This article investigates the relation between risk and individual well-being. We propose a theoretical model of happiness that makes a distinction between ex ante evaluations of happiness and ex post assessments. The main assumptions of the model are tested through three studies based on anchoring vignettes. We show that, even if, ex ante, consumers fear high risk and do not associate it to a high level of happiness, their ex post evaluation of well-being is generally higher when identical consequences result from a high-risk situation than from a low-risk situation. Control over risk-taking reinforces the gap between ex ante and ex post measures of happiness. Thus, our article provides empirical evidence about a positive relation between risk and individual well-being, suggesting that risky experiences have the potential to increase consumer well-being.     

Coalitional manipulation and the Pareto rule

This paper examines aggregation procedures that map profiles of individual preferences into choice sets. An aggregation procedure is said to be “manipulable by a coalition” if there is a group of individuals, and a preference profile, such that every member of the group prefers the choice set obtained when they are misrepresenting their preferences, to the one obtained when they are honest. We show that the Pareto rule, which is an aggregation procedure that maps profiles of individual preferences into corresponding sets of Pareto optima, is not manipulable by any coalition of individuals under various behavioural assumptions which relate preferences over choice sets to preferences over alternatives. The non-manipulability of the Pareto rule by a single individual follows as a special case under these behavioural assumptions.     

Author index for volume 26

The main result in revealed preference theory is that under fairly weak assumptions (strict concavity and monotonicity of the utility function), an agent's preferences can be recovered from the entire demand function. This paper addresses the possibility of recovering preferences from less extensive information, given additional maintained restrictions on preferences. Specifically, we explore whether an agent's utility function can be recovered from preferences over nominal gambles (when money is risky in real terms) or from demand for assets whose nominal returns contain common inflation or other risk. The recovery is constructive to the extent that there is a good numerical technique for doing Fourier transforms and inversions, and other numerical computations can be done.     

Happiness, Economy and Institutions

Institutional factors in the form of direct democracy (via initiatives and referenda) and federal structure (local autonomy) systematically and sizeably raise self-reported individual well-being in a cross-regional econometric analysis. This positive effect can be attributed to political outcomes closer to voters' preferences, as well as to the procedural utility of political participation possibilities. Moreover, the results of previous microeconometric well-being functions for other countries are generally supported. Unemployment has a strongly depressing effect on happiness. A higher income level raises happiness, however, only to a small extent.     

Do Existence Values for Cost Benefit Analysis Exist?

The use of the contingent valuation method to generate estimates of existence value for input to cost benefit analysis requires that individuals have utility functions defined over the relevant arguments. The validity of the assumption that the required utility functions generally exist has been questioned. It has been argued that some individuals will respond on the basis of lexicographic preference orderings. It has also been argued that some individuals do not consider that market, or individual willingness to pay, criteria are appropriate where existence value type issues are at stake. The paper considers survey evidence bearing upon these arguments. It is concluded that the evidence is consistent with the view that it is incorrect to proceed on the assumption that individuals generally satisfy the assumptions required for the existence of existence values for use in cost benefit analysis.     

资产管理中客户偏好的研究——兼论考虑偏好条件下基金的评估

本文探讨了资产管理中确定客户偏好和根据客户偏好选择最适合客户的资产配置方案的方法 ;并给出一个资产管理中关于波动风险偏好的随机动态模型 ,推广了R .C .Merton( 1 970 )的模型。原模型是关于消费和投资组合的动态经济模型。笔者修改了效用函数和约束方程 ,去掉消费变量并加入波动风险偏好因素 ,得到风险资产的比例和客户波动风险偏好的关系 ,以及和时间偏好之间的关系。最后论述了在考虑投资者偏好条件下 ,证券投资基金的评估方法 ,以及实际案例。     

The Importance of Ethics in Environmental Economics with a Focus on Existence Values

The importance of ethics and fundamental value judgments in environmental economics is high-lighted by discussing the controversial concept of existence values. The social value depends crucially on the social objective, which is not necessarily self-evident, e.g., since some individuals tend to value nature intrinsically. It is shown that the motives behind willingness to pay figures matter for the social value, and the conventional view that people respond to CV questions solely in order to maximize their own utility or well-being is questioned. The importance of being explicit about value judgments is emphasized, and it is argued that environmental economics should consider non-conventional assumptions which take the social context into account to a larger degree.     

Self-employment,financial development,and well-being: Evidence from China,Russia, and Ukraine

This study investigates the association between financial development and entrepreneurs’ well-being in China, Ukraine, and Russia. We find that Chinese and Russian entrepreneurs have a higher level of well-being, while Ukrainian self-employed individuals have more dissatisfaction. The link between financial development and the utility of entrepreneurs varies as well. The utility differences between the self-employed and paid workers in Russia reduce with financial development and the effect is stronger for job satisfaction. However, financial development barely correlates with Ukrainian entrepreneurs’ happiness while having no correlation with life satisfaction of Chinese self-employed. Further investigation suggests that the financial development – entrepreneurial utility association works through both monetary and non-monetary channels.     

Beliefs and Public Good Provision with Anonymous Contributors

We analyze a static game of public good contributions where finitely many anonymous players have heterogeneous preferences about the public good and heterogeneous beliefs about the distribution of preferences. In the unique symmetric equilibrium, the only individuals who make positive contributions are those who most value the public good and who are also the most pessimistic; that is, according to their beliefs, the proportion of players who most like the public good is smaller than it would be according to any other possible belief. We predict whether the aggregate contribution is larger or smaller than it would be in an analogous game with complete information and heterogeneous preferences, by comparing the beliefs of contributors with the true distribution of preferences. A trade‐off between preferences and beliefs arises if there is no individual who simultaneously has the highest preference type and the most pessimistic belief. In this case, there is a symmetric equilibrium, and multiple symmetric equilibria occur only if there are more than two preference types.     

Can welfare be measured with a preference-satisfaction index?

Welfare in economics is generally conceived of in terms of the satisfaction of preferences, but a general, comparable index measure of welfare is generally not taken to be possible. In recent years, in response to the usage of measures of subjective well-being as indices of welfare in economics, a number of economists have started to develop measures of welfare based on preference-satisfaction. In order to evaluate the success of such measures, I formulate criteria of policy-relevance and theoretical success in the context of preference-satisfaction measures of welfare. I present a detailed case study of the methodological choices put forward in a prominent generalized proposal for measuring welfare through preferences recently published in the American Economic Review. I contrast this with an alternative welfare measure which also uses preferences to weight aspects of welfare: the ICECAP-A measure. I assess the methodology of both approaches in detail and argue that the two goals of a preference measure of welfare can only be satisfied at the expense of making a measure prohibitively costly.     

Changes in subjective well-being with retirement: assessing savings adequacy

Does retirement represent a state of relative prosperity or unanticipated hardship? To assess whether individuals are successful in smoothing their well-being across the transition to retirement we analyse measures of subjective well-being (SWB) in the Household, Income and Labour Dynamics in Australia (HILDA) Survey. Specifically, this research examines retirees’ current standard of living, financial security and overall happiness relative to their pre-retirement levels. It is found SWB either improves or remains constant for the large majority of individuals as they retire from the labour force. However, there are significant disparities in changes in well-being with retirement among the group of retirees. In particular, the subset of individuals who are forced to retire early due to job loss or their own health, and who find their income in retirement to be much less than expected, report marked declines in their SWB with retirement.     

On the rationalizability of observed consumers’ choices when preferences depend on budget sets: comment

In a recent article, Bilancini (J Econ 102:275–286, 2011) demonstrates that assuming either price-dependent preferences or preferences that depend on the choices of other individuals can render the theory of revealed preference effectively unusable. Some readers might be tempted to infer that economists had better avoid such assumptions. In this note, we argue against that conclusion in favor of a less categorical and more pragmatic approach. In several domains, we identify fundamental weaknesses in revealed preference theory and argue that in those domains, nontraditional assumptions about preferences significantly enhance our ability to explain and predict behavior.     

The dynamics of preference formation

A model is developed and estimated which explains the formation of individual preferences on consumption under the influence of contacts with others (preference interdependence) and own consumption over time habit formation). The model employs a cardinal utility function which can be measured independently of behavioral assumptions. Since preference interdependence has been analyzed earlier, the paper concentrates on habit formation, the preference interdependence component being imputed from an earlier study. Due to data restrictions and measurement error, special econometric provisions must be made. Preference interdependence appears to explain two thirds of individual preferences and habit formation one third.     

HETEROGENEITY IN WILLINGNESS‐TO‐PAY FOR THEATRE PRODUCTIONS: INDIVIDUAL SPECIFIC WILLINGNESS‐TO‐PAY ESTIMATES FOR THEATRES,SHOWS AND THEIR ATTRIBUTES

This paper investigates people's preferences for live theatre, and heterogeneity in willingness‐to‐pay (WTP). A stated preference discrete choice model estimates utility and WTP for different attributes of theatre productions. Previous studies assumed fixed coefficients across all theatre‐goers. This study allows coefficients of attributes to vary across individuals in the population, providing information on the heterogeneity of tastes. Theatre‐goers' choices are used to estimate individual‐based parameters for a person's tastes in theatre productions. The analysis reveals the heterogeneity of tastes for different types of plays and ticket price; and the significance of ‘reviews’ by critics and ‘word of mouth’ opinions as important variables determining choice.     

Happiness,income and poverty

There is considerable evidence from a variety of sources to suggest that well-being is a function of relative income. These findings have been used to explain the Easterlin Paradox, whereby a rise in income for all does not lead to a rise in average happiness in a country (even though the cross section relationship between income and happiness is positive). This relativity of utility has led to calls for policy to focus away from GDP. I here first discuss some of the evidence that well-being is indeed relative in income, but then consider two relatively little-analysed issues to suggest that there may continue to be a role for GDP per capita in happiness-based policy: the inequality of subjective well-being, and the specific case of those in income poverty.     

Mandating behavioral conformity in social groups with conformist members

Social interaction among individuals with a preference for conformity gives rise to coordination externalities which are not internalized in a non-cooperative setting. Mandating behavioral conformity, by centrally imposing a common, group-wide action, internalizes these coordination externalities, but also comes at a cost of restraining individuals’ self-regarding goals. We explore a framework of social interaction among privately informed individuals with conformist preferences to examine when mandating behavioral conformity improves group welfare. Our analysis elucidates how the desirability of mandating behavioral conformity is shaped by the group's socio-economic structure. We find that mandating behavioral conformity is not desirable in social groups that are ex ante homogeneous—either with respect to members’ contribution to group welfare or their innate conformist tendency. In contrast, mandating behavioral conformity can be beneficial in those ex ante heterogeneous social groups where the individuals who contribute most to group welfare also exhibit the strongest preference for conformity.