There is increasing interest in the ‘‘economics of happiness’’, reflected by the number of articles that are appearing in mainstream economics journals that consider subjective well-being (SWB) and its determinants. This paper provides a detailed review of this literature. It focuses on papers that have been published in economics journals since 1990, as well as some key reviews in psychology and important unpublished working papers. The evidence suggests that poor health, separation, unemployment and lack of social contact are all strongly negatively associated with SWB. However, the review highlights a range of problems in drawing firm conclusions about the causes of SWB; these include some contradictory evidence, concerns over the impact on the findings of potentially unobserved variables and the lack of certainty on the direction of causality. We should be able to address some of these problems as more panel data become available.
Source: “Do we really know what makes us happy? A review of the economic literature on the factors associated with subjective well-being” from Journal of Economic Psychology 29 (2008) 94–122
No shocker there. Looking inside the paper we get more info on the various factors that influence happiness, like income:
…The results generally suggest positive but diminishing returns to income. Some of this positive association is likely to be due to reverse causation, as indicated by studies which show higher well-being leading to higher future incomes (Diener, Lucas, Oishi, & Suh, 2002; Graham, Eggers, & Sukhtankar, 2004; Marks & Flemming, 1999; Schyns, 2001), and some is likely to be due to unobserved individual characteristics, such as personality factors, as indicated by studies which find a reduced income effect after controlling for individual effects (Ferrer-i-Carbonell & Frijters, 2004; Luttmer, 2005).
Studies that have included relative income (defined in a range of different ways with a range of different reference groups) suggest well-being is strongly affected by relativities (Dorn, Fischer, Kirchgassner, & Sousa-Poza, 2007; Ferrer-i-Carbonell, 2005; Luttmer, 2005; Weinzierl, 2005). This suggests that additional income may not increase well-being if those in the relevant comparison group also gain a similar increase in income. However, increases in income that result in increases in tax yield, which could be used to fund public services that may themselves enhance well-being. For a given income level, having high aspirations and expectations have a negative effect on SWB (Macdonald & Douthitt, 1992; Stutzer, 2004). Aspirations themselves appear to be driven in part by past incomes, implying adaptation to higher levels of income…
Studies consistently find a negative relationship between age and SWB and a positive relationship between age squared and SWB (e.g. Blanchflower & Oswald, 2004a; Ferrer- i-Carbonell, & Gowdy, 2007). Studies suggest a U-shaped curve with higher levels of well-being at the younger and older age points and the lowest life satisfaction occurring in middle age, between about 32 and 50 years, depending on the study. Easterlin (2006) notes that this U-shaped relationship found when many age-related differences in life circumstances (income, health, employment, etc.) have been controlled for may be misleading since it says little about how the SWB of young and old compare to those at middle age.
The study is very long and comprehensive so I’ll just give you some quick bullet points. (As always: I’m not an academic or a statistician and if you want that level of accuracy, you are reading the wrong blog.)
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