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Building a Better Theory of Well-Being

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Author Info
Easterlin, Richard A. () (University of Southern California and IZA Bonn)
Abstract

What do social surveys of life cycle experience tell us about the determinants of subjective well-being? First, that the psychologists’ setpoint model is wrong. Life events in the nonpecuniary domain, such as marriage, divorce, and physical disability, have a lasting effect on well-being, and do not simply deflect the average person temporarily above or below a setpoint given by genetics and personality. Second, mainstream economists’ inference that in the pecuniary domain “more is better,” based on revealed preference theory, is wrong. An increase in income, and thus in the goods at one’s disposal, does not bring with it a lasting increase in well-being, because of the negative effect on utility of hedonic adaptation and social comparison. The utility anticipated ex ante from an increase in consumption turns out ex post to be less than expected, as one adapts to the new level of living, and as the living levels of others improve correspondingly. A better theory of well-being builds on the evidence that adaptation and social comparison affect utility more in pecuniary than nonpecuniary domains. The failure of individuals to anticipate that these influences disproportionately undermine utility in the pecuniary domain leads to an excessive allocation of time to pecuniary goals at the expense of nonpecuniary goals, such as family life and health, and reduces well-being. There is need to devise policies that will yield better-informed individual preferences, and thereby increase individual and societal subjective well-being.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 742.

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Length: 60 pages
Date of creation: Mar 2003
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Handle: RePEc:iza:izadps:dp742

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Related research
Keywords: subjective well-being living level health marital status aspirations

Find related papers by JEL classification:
D60 - Microeconomics - - Welfare Economics - - - General
I10 - Health, Education, and Welfare - - Health - - - General
I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare
J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology

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References listed on IDEAS
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    Other versions:
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    Other versions:
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