Utility & the Economics of Happiness: How to Measure Your State of Well-Being

One of the fundamental concepts in economics is utility, which, in the cant of the profession, means whatever works for you. Utility is a need, a preference, a source of satisfaction; if it improves your physical, spiritual or emotional well-being, then it’s said to give you utility.

Many people assume that utility is associated with money or wealth. While that can be true, the term covers much more ground than that and, in fact, can be expansive.

Utility: The Measure of One’s Satisfaction

In the excellent primer Naked Economics: Undressing the Dismal Science, author Charles Wheelan presents the example of a can of tuna. For some people, utility is contained within the inexpensive generic brand found on the bottom shelf. For others, it’s worth the additional cost to purchase the name brand that advertises itself as “dolphin and turtle friendly.” For hungry people in disadvantaged regions of the world, it’s whatever brand they can get.

This example points out one of the underlying principals of utility: it’s different for everyone and can change over the span of a lifetime, usually in conjunction with one’s political views. What comprises a person’s utility varies according to income and educational levels. However, we all want as much of it as we can get, and economic theory is based on the fact that people do what maximizes their utility in the same way that companies maximize their profitability.

And therein lies the problem.

Utility without Happiness

Maximizing utility isn’t necessarily the same as finding happiness or contentment. To again borrow from Wheelan, immunizations give us utility because they prevent us from dying of a preventable disease; however, few people actually enjoy being stuck with a hypodermic needle.

Other notable examples of utility trumping happiness include waiting at traffic lights, paying taxes and staying in a high-paying job that you detest. Some of these examples are part of the sacrifices we all make toward the greater good; however, some of the choices we make, or feel we are forced to make for financial reasons, give us utility but not happiness.

It is true that the citizens of rich nations tend to self-report themselves as happier than those of poor nations. However, studies performed within both categories show that, as long as per capita income in a nation is sufficient to provide for the basic necessities of life (currently around US$15,000), the level of happiness claimed isn’t directly correlated with the level of wealth owned, meaning that money really doesn’t buy happiness, at least not according to these researchers. When the number of lottery tickets sold diminishes, we’ll know people believe them.

The Study of Happiness

Enter the new field of happiness economics, a fascinating but uneasy blend of economics and psychology, which seeks to measure not merely a nation’s gross domestic product but also the level of emotional well-being among its citizens.

Measurements for these criteria include the Satisfaction with Life Index, which comes right out and asks people how happy they are. There is obviously an issue here with subjectivity, but when measured internationally and plotted on a map, as shown in the image at the beginning of this article, the results tend to support the concept of money buying, if not outright happiness, then at least the basics required to survive so that a person can pursue it. On the illustration, green equals most happy, then blue, purple, orange and finally red equals least happy, while grey means the data weren’t available.

Other indices used by happiness economists lean less on subjective self-reporting and more on somewhat harder data. These include:

  • Happy Life Years, which blends self-reported happiness with life expectancy;
  • the Happy Planet Index, which branches out from human happiness to also include a nation’s ecological impact; and
  • Gross national happiness, an index proposed by the King of Bhutan in 1972 which seems to depend less on any strict definitions of anything and more on his own personal preferences.

The true problem with the concept of happiness economics is that happiness is not only difficult to define, it’s also difficult to compare across cultures. The wild joy the Western world believes to be the ultimate in happiness has little appeal for more spiritual nations, where the goal is a Buddhistic calm.

The danger here lies in the political ends to which a happiness index can be turned. Bhutan remains dependent upon subsistence farming with 32% of its population living in abject poverty. But it’s the happiest nation in Asia.

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