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HappinessReview - Happiness
A Revolution in Economics
by Bruno S. Frey
MIT Press, 2008
Review by Dan Turton
Nov 11th 2008 (Volume 12, Issue 46)

Nearly everyone wants to be happy and to know more about happiness; but that doesn't mean that nearly everyone should read this book. For a select group of people, however, Happiness: A Revolution in Economics will be cherished for providing a concise and insightful summary of a burgeoning field. Particularly, economists, philosophers of economics, and political philosophers have much to gain from reading this book. Readers without a background in these areas, and a decent knowledge of statistics, will find parts of this book mystifying because of the frequently used but seldom explained subject-specific terminology.

Frey's thesis is that recent advances in happiness research have created a revolution in economics. He outlines economic method, theory, and policy as the three main areas in which this revolution is occurring.

Since the 1930's, when the last major revolution in economics occurred, two ideas have set the course for microeconomic method: that utility cannot be measured and that we do not need to measure it to be able to practice economics. It is becoming increasingly obvious that, while not strictly needed, being able to measure utility could help solve some major problems in economics. The incumbent economic method is to use Revealed Preference Theory, where a person's actual choices are supposed to demonstrate the ideal option for them, in the place of utility. Revealed Preference Theory runs into trouble when confronted with the multitude of choices people make that are clearly not in their best interests. In Chapter 9, Frey gives the example of watching too much television. He provides empirical evidence showing that some people choose to watch television, thinking that it is the ideal option for them at the time, but subsequently regret doing so. If utility could be given content, or at least a much better proxy, then weakness of will and predictive failure problems would be much easier to resolve. In Chapter 12, Frey also argues that happiness research could also help solve some current problems with methods used to evaluate public goods.

Of course, these solutions proposed by happiness research rely on the methodological claim that utility can actually be measured. This claim is dealt with in a fairly hasty fashion in Chapter 2, in which Frey discusses five methods for measuring happiness, or subjective well-being as the broader concept is commonly known. Unfortunately, the chapter fails to address the major problem with all of the methods proposed: reliance on self-reports or behavioral analyses. Simply asking people if they are happy can enable a wide range of unwanted biases to creep into any survey. For example, the current weather and finding ten cents just before being asked to report on their happiness significantly changes how respondents rate their satisfaction with their whole life. The problem is that there is no infallible way to tell if someone who reports themselves as being happy really is happy. The final technique mentioned by Frey, neuroimaging, might be thought to solve this problem. Neuroimaging involves measuring brain activity that has been hypothesized to be linked to happiness. The trouble with neuroimaging is that the brain activity is matched with self-reports and behavioral analyses. Therefore, even if a strong correlation was found, it would only show that self-reports match something in the brain, but not necessarily that they match neuronal happiness activity. In fact, the best correlation between neuroimaging and self-reported happiness data to date is only partial, explaining about one quarter of the relationship (Urry et al. 2004). Despite this doom-mongering, I strongly agree with Frey that certain types of self-reported happiness are probably the best approximation for utility that we currently have and that continued research in psychology, neuroscience, and perhaps neuroeconomics will only make them better.

Frey also argues that happiness research can be seen as revolutionary for economic theory in general and provides examples of specific micro- and macroeconomic theories that could be revitalized by applying insights from happiness research. Perhaps most importantly, happiness research could be used in public economics to help optimize results in taxation problems. In taxation theory, individual utility functions have been assumed and used to predict optimal taxation levels. By replacing these assumptions with actual empirical results, models can be recalibrated and existing taxation theories can be accordingly revised.

By changing economic theories, happiness research will also revolutionize economic policy. Frey stresses the importance of using happiness research to observe the utility effects of tradeoffs between economic variables, such as inflation and unemployment. If the impacts of changes in both unemployment and inflation on the happiness of a population can be calculated, then economic policies that increase happiness can be pursued. It should be noted here that, in Chapter 13, Frey considers the possibility of using a happiness-maximizing principle to guide all decision making, but rejects it as a stand-alone principle in favor of using the standard economic indicators in combination with a National Happiness Indicator. His rejection of using a happiness-maximizing principle to guide all decision making is based on a discussion of several objections by various groups of academics. Several issues are raised here that deserve attention from political philosophers, particularly the questions: is happiness the ultimate good? And what is the fairest way to treat interpersonal comparisons of happiness?

In the penultimate, and boldest, chapter of this book, Frey outlines how economic policies regarding political representation could be in for a real revolution due to the recent findings of happiness research on direct democracies. The research shows that in direct democracies, where citizens have much more involvement in the legislative processes that affect them, people are much happier. Frey calls this procedural happiness: being happy about the way something is affecting you, instead of just the outcome. For example, someone who received a negative response from a fair process is much more likely to be happier with it than if the process had been unjust. Based on this idea, Frey argues strongly for a novel kind of federalism: Functional Overlapping Competing Jurisdictions (FOCJ). Frey proposes that FOCJ will increase the happiness of citizens by allowing them to be involved with legislative decision-making processes that are relevant to them, importantly including taxation. The general idea is that there will be lots of centers of jurisdiction (FOCUSes) that act at various levels depending on what they are responsible for; defense will require a large jurisdiction to be effective, but parking regulations will not. For certain services, FOCUSes will be in competition with each other due to the geographic mobility of citizens and of the services themselves. According to Frey, FOCJ allows citizens to vote in the economic sense (with their money), and in the traditional political sense, to ensure that their preferences are satisfied. This greater degree of political autonomy, he convincingly argues, will lead to a happier population.

Happiness: A Revolution in Economics should be read by all economists, political philosophers and philosophers of economics that do not want to be left behind as the happiness movement gains momentum. This book provides valuable insights into new methods of performing economic analyses and some of the profound effects that happiness research could have on economic theory and policy in the very near future.

Urry, H., et al. (2004). Making a Life Worth Living: Neural Correlates of Well-Being, Psychological Science, 15(6): 367-372.

© 2008 Dan Turton

Dan Turton is currently a post-graduate student in the philosophy department at Victoria University of Wellington. His research speciality is happiness and his area of competence is moral and political philosophy, especially normative and applied ethics.


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