Utility and Happiness

Miles Kimball and Robert J. Willis

No 31707, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Psychologists have developed effective survey methods of measuring how happy people feel at a given time. The relationship between how happy a person feels and utility is an unresolved question. Existing work in Economics either ignores happiness data or assumes that felt happiness is more or less the same thing as flow utility. The approach we propose in this paper steers a middle course between the two polar views that “happiness is irrelevant to Economics” and the view that “happiness is a sufficient statistic for utility.” We argue that felt happiness is not the same thing as flow utility, but that it does have a systematic relationship to utility. In particular, we propose that happiness is the sum of two components: (1) elation–or short-run happiness–which depends on recent news about lifetime utility and (2) baseline mood–or long-run happiness–which is a subutility function much like health, entertainment, or nutrition. In principle, all of the usual techniques of price theory apply to baseline mood, but the application of those techniques is complicated by the fact that many people may not know the true household production function for baseline mood. If this theory is on target, there are two reasons data on felt happiness is important for Economics. First, short-run happiness in response to news can give important information about preferences. Second, long-run happiness is important for economic welfare in the same way as other higher-order goods such as health, entertainment, or nutrition.

JEL-codes: D60 D90 D91 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-ger, nep-hap, nep-hea, nep-hpe, nep-ltv and nep-upt
Note: AG PE
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