Insights on Development from the Economics of Happiness

The literature on the economics of happiness in developed economies finds discrepancies between reported measures of well-being and income measures. One is the so-called Easterlin paradox: that average happiness levels do not increase as countries grow wealthier. This article explores how that paradox--and survey research on reported well-being in general--can provide insights into the gaps between standard measures of economic development and individual assessments of welfare. Analysis of research on reported well-being in Latin America and Russia finds notable discrepancies between respondents' assessments of their own well-being and income- or expenditure-based measures. Accepting a wide margin for error in both types of measures, the article posits that taking such discrepancies into account may improve the understanding of development outcomes by providing a broader view on well-being than do income- or expenditure-based measures alone. It suggests particular areas where research on reported well-being has the most potential to contribute. Yet the article also notes that some interpretations of happiness research--psychologists' set point theory, in particular--may be quite limited in their application to development questions and cautions against the direct translation of results of happiness surveys into policy recommendations.