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Happiness, Money, and Your Heart
Andrew OswaldWarwick University
* I would like to acknowedge that much of this work is joint with coauthors Nick Powdthavee, David G. Blanchflower, and Rainer Winkelmann.
Economics is changing
Economics is changing
Researchers are studying mental well-being.
Economics is changing
Researchers are studying mental well-being.
We are drawing closer to psychology and medicine.
Using random samples from many nations:
Researchers try to find what influences the psychological wellbeing of
(i) individuals
(ii) nations.
Today I would like to ask four questions.
#1
#1
In the 21st century, should our society’s goal be happiness rather than GDP?
#2
#2
What actually happens to a person when they get a lot of money (say by winning the lottery)?
#2
What actually happens to a person when they get a lot of money (say by winning the lottery)?
#3
#3
Could physiological measures, like heart rate and blood pressure, be used as proxies for well-being?
#3
Could physiological measures, like heart rate and blood pressure, be used as proxies for well-being?
#4
#4
How should we think about the causes of the current financial crisis?
• A fundamental question:
Is modern society going in a good direction?
Is modern society going in a good direction?
Are we getting happier?
Possibly not…..
The Easterlin Paradox
Average Happiness and Real GDP per Capita for Repeated Cross-sections of Americans.
1.8
22.2
2.4
2.6
Mea
n H
app
iness
15
00
018
00
021
00
024
00
0R
eal G
DP
pe
r C
ap
ita
1975 1980 1985 1990 1995Year
Real GDP per Capita Mean Happiness
Life-Satisfaction Levels in European Nations
2.4
2.6
2.8
3
3.2
3.4
3.6
3.8
1974 1982 1990 1998 2006
ItalyIrelandGermanyNetherlands
So, could we learn how …
..to make whole countries happier?
Preferably not like this…
Italy 6 England 0
What kind of data do we use in research on well-being?
The types of sources
British Household Panel Study (BHPS)German Socioeconomic PanelAustralian HILDA PanelGeneral Social Survey of the USAEurobarometer SurveysLabour Force Survey from the UKWorld Values SurveysNCDS 1958 cohort
Various statistical methods
Some cheery news:
Some cheery news:
In Western nations, most people seem happy with their lives
Some cheery news:
In Western nations, most people seem happy with their lives
The distribution of life-satisfaction levels among British people
0
5
10
15
20
25
30
35
Per
cen
tag
e o
f P
op
ula
tio
n
1 2 3 4 5 6 7
Self-rated Life Satisfaction
Source: BHPS, 1997-2003. N = 74,481
But obviously life is a mixture of ups and downs
Statistically, wellbeing in panels is strongly correlated with life events
..good and bad.
Big effects
Unemployment
Divorce
Marriage
Bereavement
Friendship networks
Health
[No effects from children]
Much of the new research follows people through time.
eg. Andrew Clark’s work
The unhappiness from bereavement
So people adapt
So people adapt
But that has a downside….
The happiness from marriage
And should you invest in a baby?
Happiness and children
An important question in a modern society is the impact of divorce.
Divorce eventually makes people happier
Divorce eventually makes people happier
• Other findings
Happiness is also U-shaped over the life course
The pattern of a typical person’s happiness through life
4.9
5.0
5.1
5.2
5.3
5.4
5.5
5.6
15-20 21-30 31-40 41-50 51-60 61-70Age group
Ave
rag
e li
fe s
atis
fact
ion
sco
re
This holds in various settings
This holds in various settings
For example, we see the same age pattern in mental health among a recent sample of 800,000 UK citizens:
[Blanchflower and Oswald, Social Science & Medicine, 2008]
The probability of depression by ageMales, LFS data set 2004-2006
-0.01
-0.005
0
0.005
0.01
0.015
0.02
1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990
Year of birth
Reg
ress
ion
co
effi
cien
t
-0.014
-0.012
-0.01
-0.008
-0.006
-0.004
-0.002
0
0.002
1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990
Depression by age among females: LFS data 2004-2006Q2
Year of birth
Reg
ress
ion
co
effi
cien
t
Now what about money?
Now what about money?
The data show that richer people are happier and healthier.
But in particular
Relative income is what seems to matter to humans.
(consistent with Easterlin’s paradox)
In terms of economic theory:
u = u(y/y*)
where y* is what other people earn.
For example
Di Tella et al REStats 2003, Blanchflower and Oswald JPubEcon 2004, and Luttmer QJE 2005 show income is monotonic in happiness equations for 11 industrial countries.
But is there really good causal evidence?
One recent attempt (Gardner-Oswald, Journal of Health Economics
2007):
Studying windfalls is one approach:-
.
So what happens to someone who gets a largish lottery win?
Remarkably
There is no immediate effect on well-being as measured by happiness or financial satisfaction.
In our data
Strikingly, even the person who receives the equivalent of 1 million US dollars reports a fall, in time t1, in financial satisfaction (ie. satisfaction with the household’s income).
But, after three years, a large effect on satisfaction suddenly becomes apparent.
Lottery wins raise mental well-being
But the puzzle remains
But the puzzle remains
There is a delay.
But the puzzle remains
There is a delay.
The longitudinal lottery work finds the effect of a win takes at least two years to show up in mental well-being scores.
Where will research head in the future?
An interesting border is between happiness and medicine
An interesting border is between happiness and medicine
• Is it possible that we can find physiological correlates with human well-being?
• Perhaps to broaden the standard policy goal of GDP?
Some of our latest work:
Statistical links between the heart and income and happiness.
To clinicians
High blood pressure is potentially a sign of mental strain and low well-being
Some regression evidence
Some regression evidence
When we estimate a life-satisfaction equation
LS = f (high blood pressure, control variables)
Hypertension enters negatively in a 10,000 sample from NCDS cohort and a 15,000 sample from Eurobarometers
But how about high blood pressure as a national measure of well-being?
Across nations, hypertension and happiness are inversely correlated
(Blanchflower and Oswald, 2008 Journal of Health Economics)
0
10
20
30
40
50
Figure 2.The Inverse Correlation Between Hypertension and Life
Satisfaction: 16 European Nations Aggregated into Quartiles
Countries in the Countries in the lowest quartile highest quartile of blood-pressure of blood-pressure
IrelandDenmarkN'LandsSweden
SpainFranceLuxUK Austria
ItalyBelgiumGreece
E. GermanyW. GermanyPortugalFinland
P
erce
nta
ge o
f citi
zens
ver
y sa
tisfie
d w
ith t
heir
live
s
Per
cent
age
of c
itiz
ens
very
sat
isfi
ed w
ith
thei
r li
ves
Some of our latest work:
It is known that heart rate rises under stress.
Stress comes in different forms
Stress comes in different forms
Stress comes in different forms
Stress comes in different forms
Stress comes in different forms
Stress comes in different forms
Stress comes in different forms
Stress comes in different forms
We draw a random sample of 80,000 British individuals, and study their resting heart rates.
Pulse: Average heart rate is about 75 beats per minute.
Pulse and Money
We find that for every extra 40,000 Euros a year, heart rate is 1 beat a minute slower.
Heart-Rate Equations(joint work with David G Blanchflower)
There are deep connections between happiness, money and the behaviour of the heart.
Finally
Happiness, herds and the financial crisis
Why did we get into the crisis, and how will human happiness be affected?
The evidence suggests that when a person is made unemployed:
The evidence suggests that when a person is made unemployed:
• 20% of the fall in mental well-being is due to the decline in their income
• 80% is due to non-pecuniary things (loss of self-esteem, status..).
Countries are happier if they have low unemployment and inflation, and generous welfare benefits.
‘Fear’ depresses happiness.
R. Di Tella, R. Macculloch, A.J. Oswald American Economic Review, 2001.
In a recession
there is a widespread decline in mental well-being, we think because of the generalized insecurity.
Herds and keeping up with the Joneses
• "Men … think in herds; they go mad in herds, … they only recover their senses slowly, and one by one."
C. Mackay
Extraordinary Popular Delusions and the Madness of Crowds, by Charles MacKay, published in 1841.
Extraordinary Popular Delusions and the Madness of Crowds, by Charles MacKay, published in 1841.
Far from the Madding Crowd, by Thomas Hardy, published in 1874.
Why does it happen?
Why does it happen?
We know that people care about relative things.
On a technical note
To economists and any mathematicians here:
On a technical note
To economists and any mathematicians here:
I have in mind a class of problem where utility depends on relative actions.
Imagine a person is choosing an action a to solve:
Maximize u(a) + v(a – a*) – c(a)
where a* is what everyone else is doing.
Then if v is concave (convex) in status, it is rational to act similarly to (deviantly from) the herd.
Subconsciously, humans are frightened of falling behind:
Subconsciously, humans are frightened of falling behind:
• Bank lenders and brokers felt they had to match rivals.
• Home buyers paid extraordinary prices in order to keep up.
• Money managers -- rewarded on relative performance against other managers -- copied what the others did.
When rewards depend on your relative position
it will routinely be
When rewards depend on your relative position
it will routinely be
(i) dangerous to question whether the whole group’s activity is flawed
(ii) rational simply to compete hard within the rules that govern success.
When rewards depend on your relative position
it will routinely be
(i) dangerous to question whether the whole group’s activity is flawed
(ii) rational simply to compete hard within the rules that govern success.
Correct dotcom analysts were fired.
The pressures for conformity are strong.
Herd behaviour is very often natural and individually rational. But it has the potential to be disastrous for the group.
To any students here
These psychological forces are powerful and will come around again, a number of times, in your lifetime.
• Now to the housing market, which started our problems.
Real house prices in the United States over a century
Real house prices in the UK 1975-2006
So all the historical data suggested that house prices were unsustainable.
Yet -- even two or three years ago near the peak -- few people spoke about the apparent likelihood of a crash.
Yet -- even two or three years ago near the peak -- few people spoke about the apparent likelihood of a crash.
…another kind of herd action.
Unfortunately, we do have to have some lean years
Some ideas to end:
Conclusions
#1 In the next century, new measures of human well-being will be required.
Conclusions
#2 As social scientists, we need to understand better the connections between mental and physical health.
Conclusions
#3 Heart-rate and blood pressure data have particular potential in policy design.
Conclusions
#4 Social scientists will, I believe, collaborate more with doctors and epidemiologists.
Conclusions
#5 Economists need to incorporate herd behaviour more fully into standard models.
More broadly on well-being
More broadly on well-being
Policy in the coming century may need to concentrate on non-materialistic goals.
More broadly on well-being
Policy in the coming century may need to concentrate on non-materialistic goals.
GNH not GDP.
Thank you.
Happiness, Money, and Your Heart
Andrew OswaldWarwick University
Papers downloadable at www.andrewoswald.com
* I would like to acknowedge that much of this work is joint with coauthors Nick Powdthavee, David G. Blanchflower, and Rainer Winkelmann.
