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Economics of Happiness: A Review of Literature and Applications

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This paper presents a review of literature, validation, methods, and applications of subjective well-being data in economic analysis. The idea is to provide researchers and policy makers a comprehensive guideline to what need to be considered before embarking on a research in the economics of happiness such as data collection and the validation of happiness scales.
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... With significant implications for both individuals and the society as a whole, subjective wellbeing (SWB) has gained increasing attention across various disciplines, often referred to as the "happiness turn" (Frawley, 2015). This rapidly growing body of literature has primarily focused on identifying individual and national-level factors that predict SWB (see reviews by Fordyce, 1988;Ryan & Deci, 2001;Powdthavee, 2007;Veenhoven, 2015;Lijadi, 2018). However, there is a growing call to investigate the geography of SWB, examining regional and local influences (e.g., Morrison, 2011Morrison, , 2021OECD, 2014;Veneri & Edzes, 2019;Huang et al., 2023). ...
... Since Easterlin's pioneering work in 1974, there has been a significant and growing body of literature on SWB across various disciplines. Many scholars have reviewed this literature extensively (see Fordyce, 1988;Lijadi, 2018;Ryan & Deci, 2001;Powdthavee, 2007;Veenhoven, 2015;Frawley, 2015); therefore, we will not delve further into those reviews here. The exiting literature has primarily focused on three main questions: (1) What and how do individual/household factors shape SWB? (2) why does SWB fail to improve with the increase of societal economic wellbeing, known-as the "Easterlin paradox" (Easterlin, 1974)? ...
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This study investigates inter-generational connections between adult children and elderly parents in China during a period of profound socioeconomic transformations and examine their impact on subjective wellbeing. Using data from the China Household Finance Survey, we examine whether adult children experience greater happiness when they maintain close connections with their aging parents. In addition to considering the well-established factors of age, health, homeownership, and financial resources, we specifically focus on living arrangements between adult children and aging parents and find living apart but in proximity has replaced co-residence as the dominant living arrangement in China and has a significant positive effect on wellbeing. Furthermore, we observe that strong intergenerational connections, encompassing emotional and material support, also significantly enhance wellbeing. This suggests that despite ongoing modernization and market transition in China, the enduring influence of Confucian values on family bonds persists, albeit with some contemporary adaptations, thereby promoting wellbeing. By examining inter-generational connections within extended families and their intersectionality with SWB, this study contributes to the literature on wellbeing by providing a familial perspective and studying a unique meso-level local contexts defined by family relations rather than spatial or administrative boundaries.
... Studying happiness requires an interdisciplinary approach in order to contribute to the debate of the pursuit of happiness, from psychology (Frawley, 2015) to economics of happiness (Powdthavee, 2007) to mathematics (Carrero et al., 2022), and philosophy, etc. In this context, our contribution relies on developing a numerical model of the dynamics of hedonic happiness. ...
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Describing the dynamical nature of happiness is crucial for understanding why individuals are constantly running on a hedonic treadmill around set levels of well-being. Based on the self-centeredness branch of the ’self-centeredness/selflessness happiness model’, we present a dynamical model that focuses on unfolding the hedonic dimension of happiness dynamics through the use of the approach–avoidance framework. This numerical model enables us to understand and analyze emerging hedonic cycles caused by hedonic motivation and hedonic adaptation. In particular, hedonic motivation leads people to experience hedonic activities, which result in successes or failures and experiences of pleasure and afflictive affects; whereas hedonic adaptation causes individuals to return to a baseline level of pleasure and afflictive affects, more quickly for the former than the latter. The proposed dynamical model is based on the approach–avoidance framework that considers human behavior in two separate regulatory processes that contribute to homeostasis of individuals’ happiness. We analyze these two processes independently and conjointly in order to highlight their effect on happiness levels. The analysis shows how individual characteristics and their combination may result in hedonic cycles, afflictive affects, (dis-)pleasure, and particular happiness dynamics. We also discuss how such a numerical model enables us to perform a multifactorial analysis which is hardly feasible outside the context of a simulation and how it may help us to narrow and design relevant experimental surveys from these preliminary numerical results.
... According to Powdthavee (2007), happiness increases economic growth, improves labor productivity and positively impacts health. Increasing happiness includes strengthening social relations, adopting a healthy lifestyle, and volunteering. ...
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The main purpose of this study is to determine the relationship between wealth and happiness. The study, which uses the 2023 World Happiness Report, uses data from 74 countries. For this purpose, three static and two dynamic models are estimated in a panel data environment. According to all three models, wealth is a factor of happiness. However, happiness cannot be explained by a single wealth factor. Wealth is the fourth-factor explaining happiness. It is seen that the effect of wealth on happiness is limited. There are other important factors affecting happiness. What is certain is that there is a relationship between wealth and happiness. The strength of this relationship is different for different countries and different cultures. In addition, different benchmarks and different research methods lead to different results. The first task for governments, companies and individuals is identifying the factors explaining happiness. The second is to develop policies related to these factors. The third is to achieve social consensus. In conclusion, there is a need for more research on the relationship between wealth and happiness. Existing studies provide important information to the parties involved in understanding this relationship. Thus, they contribute to a happier world.
... However, from a theoretical point of view, the phenomenon of happiness lacks interpretation and definition of its concept in the context of economic science. In certain aspects, the economic interpretation of happiness was developed by the following economists: Coyne & Boettke (2006), Powdthavee (2007), Trumpy (2008), Pugno (2014), Van Hoorn & Sent (2016), Clark (2018) and others. However, the novelty and relevance of the topic can be considered as some of the reasons for a more detailed study of the allocation of time between work and personal life, and for an evaluation of happiness as an economic phenomenon. ...
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This paper presents an analysis of the characteristics of the economic phenomenon of happiness and its aspects in the self-employed population in Lithuania. This mixed empirical study uses statistical data, correlational analyzes, and the 2 criterion. The research data are collected using the methods of questionnaire survey, time diary, and semi-structured expert interview. The concept of happiness is defined based on the results of empirical analysis, which also demonstrate that in 2019 self-employed persons in Lithuania were happy and satisfied with their work and personal life. The research results also reveal that there is a statistically significant relationship between the employed population seeking to balance work and personal life and the level of happiness. JEL Classification: C87, D91, J28
... He showed that economic growth did not automatically translate into greater life satisfaction, 1 at least once basic needs are met (Easterlin paradox). From the nineties on, empirical and experimental economic research have revealed other traits which together with income, tangible goods and services, may affect people's well-being (for a review of the literature, see Powdthavee (2007), Stutzer (2002b, 2002a) and Kahneman et al. (1999)). Many studies have looked for correlations between socio-demographic, institutional and contextual variables (e.g. ...
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This paper presents the results of an analysis that compared two types of tourists who hold a different view of and interact differently with their surrounding environment. It evidenced that more consumptive and consumer‐oriented tourists are normally less happy than those practising more appreciative and sharing‐oriented activities. To explain the differential, it offers a theoretical interpretation based on the idea that individual choices are not autonomous and independent, and that aspects like comparisons, observability of possessions and level of competition in the reference group may dampen the effect of various correlates on people's life satisfaction.
... I would like to thank Antonella D'Agostino for her useful suggestions and technical support. Responsibility for any error is entirely mine. 1 For a review of the literature on the argument see Clark (2018), Powdthavee (2007) and Frey and Stutzer (2002a;2002b). In the last decades, research on happiness has flourished, the main aims being understanding what makes people happy (determinants) and whether happy people perform better on some personal and economic qualities (Clark, 2018;Diener and Seligman, 2004;Frey and Stutzer, 2002a). ...
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A revised version of this paper has been published in Croes, R. and Yang, Y. eds, (2022). A modern guide to tourism economics, Edward Elgar Publishing In the recent decades, an increasing attention has been dedicated to tourism as a determinant of individuals happiness. The relationship between tourism and subjective well-being has been investigate in the framework of social capital formation. Empirical research evidenced that social capital contributes to people happiness. Since leisure activities allows people to build social relationships and expand their cultural perspective, tourism may powerfully permit to foster subjective well-being. However, there are a variety of forms of tourism and activities based on different motivations and reference values. Some of them just reproduce the everyday life while others facilitate relationships and connectedness. This paper tries to investigate and shed additional light on the relationship between type of tourism and tourists' happiness. It tests empirically and explains theoretically whether more appreciative form of tourism pay a higher "return on investments" in term happiness.
... Empirical work on happiness and subjective well-being commonly begins with definitions which are elusive in the extant literature (Frey, 2018;Kahneman and Krueger, 2006). Powdthavee (2007) and Clark (2018) provide thorough reviews of the "economics of happiness," the research field that links economic policies and societal welfare. Regardless of the definition used, researchers have shown that the most common principal components are financial distress (Liu et al., 2020;Giarda, 2013) and income (Linxiang and Wei, 2020;Kahneman and Krueger, 2006). ...
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Purpose This paper models the benefits of Islamic banking on the efficiency of the banking sector and on societal happiness. This paper aims to examine how the adoption of Islamic banking to various degrees affects economics outcomes. Design/methodology/approach This study uses machine-learning tools to build a happiness function and integrate it in an agent-based model to test for the direct and indirect welfare effects of implementing Islamic banking principles. Findings This study shows that even though Islamic banking systems tend to reduce economic activity, financial stability and societal happiness is improved. Additionally, a banking sector using Islamic principles across all its members is better equipped to handle banking crises because contagion to both economic activity and societal welfare is greatly reduced. At the same time, adoption of the profit-and-loss sharing (PLS) paradigm by banks may also slow down economic growth. Research limitations/implications The findings extend existing literature on the advantages of Islamic banking, by quantifying the welfare benefits of the PLS paradigm on happiness and financial stability. Originality/value To the best of the authors’ knowledge, this paper is the first to combine agent-based modelling with machine learning tools to examine the benefits of the Islamic banking model on financial stability, social welfare and unemployment.
... Within the framework of pay-level comparisons, the idea of 'excess burden' of taxation that is used in standard cost-benefit analysis needs to be re-evaluated (Layard 2006). More generally, the concern for relative wages is a negative externality and can result in over-spending on private consumption and under-provision of public goods (Frank 2008;Layard 2006;Ng 2003;Powdthavee 2007). In agreement with the results emerging from the keeping up with the Joneses formulations, one of the basic implications of the identity models is to undermine the standard conception of how economic incentives work and therefore ensuing relevant policy suggestions (Akerlof and Kranton 2000. ...
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Τhe idea that social influences and social interactions play a central role in individual economic decisions has had a long presence in the history of economics. With the emergence of marginalism, this idea retreated into the background and the concept of the atomistic individual became established in mainstream economic rationality. Starting in the 1970s, there were some attempts to reintroduce non-atomistic preferences in mainstream microeconomic theory in the form of social interactions, interdependent preferences, keeping up with the Joneses, social identity, social preferences, and status concerns. Social preferences have a growing impact among mainstream microeconomics with the advent of behavioral economics, but still they are not in the hard core of the standard theory of choice. The article argues that atomistic preferences are still prevalent, especially in the form of the assumption of the representative agent. It also focuses on the role of methodological individualism and on the theoretical implications of relaxing the assumption of the atomistic individual as the main explanations for the resilience of the notion.
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ABSTRACT Cross-sectional studies show that divorced people report lower levels of life satisfaction than do married people. However, such studies cannot determine whether satisfaction actually changes following divorce. In the current study, data from an 18-year panel study of more than 30,000 Germans were used to examine reaction and adaptation to divorce. Results show that satisfaction drops as one approaches divorce and then gradually rebounds over time. However, the return to baseline is not complete. In addition, prospective analyses show that people who will divorce are less happy than those who stay married, even before either group gets married. Thus, the association between divorce and life satisfaction is due to both preexisting differences and lasting changes following the event.