Happiness, Money, and Your Heart Andrew Oswald Warwick University

1
Happiness, Money, and Your Heart Andrew
OswaldWarwick University

• I would like to acknowedge that much of this
  work is joint with coauthors Nick Powdthavee,
  David G. Blanchflower, and Rainer Winkelmann.

2
Economics is changing

3
Economics is changing

• Researchers are studying mental well-being.

4
Economics is changing

• Researchers are studying mental well-being.
• We are drawing closer to psychology and medicine.

5
Using random samples from many nations

• Researchers try to find what influences the
  psychological wellbeing of
• (i) individuals
• (ii) nations.

6

• Today I would like to ask four questions.

7
1

8
1

• In the 21st century, should our societys goal
  be happiness rather than GDP?

9
2

10
2

• What actually happens to a person when they get
  a lot of money (say by winning the lottery)?

11
2

• What actually happens to a person when they get
  a lot of money (say by winning the lottery)?

12
3

13
3

• Could physiological measures, like heart rate
  and blood pressure, be used as proxies for
  well-being?

14
3

• Could physiological measures, like heart rate
  and blood pressure, be used as proxies for
  well-being?

15
4

16
4

• How should we think about the causes of the
  current financial crisis?

17

• A fundamental question

18

• Is modern society going in a good direction?

19

• Is modern society going in a good direction?
• Are we getting happier?

20

• Possibly not..

21

• The Easterlin Paradox

22
Average Happiness and Real GDP per Capita for
Repeated Cross-sections of Americans.
23
Life-Satisfaction Levels in European Nations

24
So, could we learn how
25
..to make whole countries happier?
26

• Preferably not like this

27
(No Transcript)
28
Italy 6 England 0
29
What kind of data do we use in research on
well-being?
30
The types of sources

• British Household Panel Study (BHPS)
• German Socioeconomic Panel
• Australian HILDA Panel
• General Social Survey of the USA
• Eurobarometer Surveys
• Labour Force Survey from the UK
• World Values Surveys
• NCDS 1958 cohort

31
Various statistical methods
32
Some cheery news

33
Some cheery news

• In Western nations, most people seem happy with
  their lives

34
Some cheery news

• In Western nations, most people seem happy with
  their lives

35
The distribution of life-satisfaction levels
among British people
Source BHPS, 1997-2003. N 74,481
36
But obviously life is a mixture of ups and downs
37

• Statistically, wellbeing in panels is strongly
  correlated with life events
• ..good and bad.

38
Big effects

• Unemployment
• Divorce
• Marriage
• Bereavement
• Friendship networks
• Health
• No effects from children

39

• Much of the new research follows people
  through time.
• eg. Andrew Clarks work

40
The unhappiness from bereavement
41
So people adapt
42
So people adapt

• But that has a downside.

43
The happiness from marriage

44
And should you invest in a baby?
45
Happiness and children
46

• An important question in a modern society is
  the impact of divorce.

47
Divorce eventually makes people happier
48
Divorce eventually makes people happier
49

• Other findings

50
Happiness is also U-shaped over the life course
51
The pattern of a typical persons happiness
through life
52
This holds in various settings
53
This holds in various settings

• For example, we see the same age pattern in
  mental health among a recent sample of 800,000 UK
  citizens
• Blanchflower and Oswald, Social Science
  Medicine, 2008

54
The probability of depression by age Males, LFS
data set 2004-2006
0.02
0.015
0.01
Regression coefficient
0.005
0
-0.005
-0.01
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
Year of birth
55
Depression by age among females LFS data
2004-2006Q2
0.002
0
-0.002
-0.004
Regression coefficient
-0.006
-0.008
-0.01
-0.012
-0.014
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
Year of birth
56
Now what about money?

57
Now what about money?

• The data show that richer people are happier and
  healthier.

58
But in particular

• Relative income is what seems to matter to
  humans.
• (consistent with Easterlins paradox)

59

• In terms of economic theory
• u u(y/y)
• where y is what other people earn.

60
For example

• Di Tella et al REStats 2003, Blanchflower and
  Oswald JPubEcon 2004, and Luttmer QJE 2005 show
  income is monotonic in happiness equations for 11
  industrial countries.

61

• But is there really good causal evidence?
• One recent attempt (Gardner-Oswald, Journal of
  Health Economics 2007)

62

• Studying windfalls is one approach-

.
63

• So what happens to someone who gets a largish
  lottery win?

64
Remarkably

• There is no immediate effect on well-being as
  measured by happiness or financial satisfaction.

65
In our data

• Strikingly, even the person who receives the
  equivalent of 1 million US dollars reports a
  fall, in time t1, in financial satisfaction (ie.
  satisfaction with the households income).

66

• But, after three years, a large effect on
  satisfaction suddenly becomes apparent.

67
Lottery wins raise mental well-being
68
But the puzzle remains

69
But the puzzle remains

• There is a delay.

70
But the puzzle remains

• There is a delay.
• The longitudinal lottery work finds the effect
  of a win takes at least two years to show up in
  mental well-being scores.

71

• Where will research head in the future?

72
An interesting border is between happiness and
medicine
73
An interesting border is between happiness and
medicine

• Is it possible that we can find physiological
  correlates with human well-being?
• Perhaps to broaden the standard policy goal of
  GDP?

74
Some of our latest work

• Statistical links between the heart and income
  and happiness.

75
To clinicians

• High blood pressure is potentially a sign of
  mental strain and low well-being

76
Some regression evidence

77
Some regression evidence

• When we estimate a life-satisfaction equation
• LS f (high blood pressure, control variables)
• Hypertension enters negatively in a 10,000
  sample from NCDS cohort and a 15,000 sample from
  Eurobarometers

78

• But how about high blood pressure as a
  national measure of well-being?

79
Across nations, hypertension and happiness are
inversely correlated (Blanchflower and Oswald,
2008 Journal of Health Economics)
80
Some of our latest work

81

• It is known that heart rate rises under stress.

82
Stress comes in different forms
83
Stress comes in different forms
84
Stress comes in different forms
85
Stress comes in different forms
86
Stress comes in different forms
87
Stress comes in different forms
88
Stress comes in different forms
89
Stress comes in different forms
90
Stress comes in different forms
91
Stress comes in different forms
92
Stress comes in different forms
93
Stress comes in different forms
94

• We draw a random sample of 80,000 British
  individuals, and study their resting heart rates.

95

• Pulse Average heart rate is about 75 beats
  per minute.

96
Pulse and Money

• We find that for every extra 40,000 Euros a
  year, heart rate is 1 beat a minute slower.

97
Heart-Rate Equations(joint work with David G
Blanchflower)
98

• There are deep connections between happiness,
  money and the behaviour of the heart.

99
Finally
100
Happiness, herds and the financial crisis

101

• Why did we get into the crisis, and how will
  human happiness be affected?

102
The evidence suggests that when a person is made
unemployed
103
The evidence suggests that when a person is made
unemployed

• 20 of the fall in mental well-being is due to
  the decline in their income
• 80 is due to non-pecuniary things (loss of
  self-esteem, status..).

104

• Countries are happier if they have low
  unemployment and inflation, and generous welfare
  benefits.
• Fear depresses happiness.
• R. Di Tella, R. Macculloch, A.J. Oswald
  American Economic Review, 2001.

105
In a recession

• there is a widespread decline in mental
  well-being, we think because of the generalized
  insecurity.

106

• Herds and keeping up with the Joneses

107

• "Men think in herds they go mad in herds,
  they only recover their senses slowly, and one by
  one."
• C. Mackay

108

• Extraordinary Popular Delusions and the Madness
  of Crowds, by Charles MacKay, published in 1841.

109

• Extraordinary Popular Delusions and the Madness
  of Crowds, by Charles MacKay, published in 1841.
• Far from the Madding Crowd, by Thomas Hardy,
  published in 1874.

110
Why does it happen?

111
Why does it happen?

• We know that people care about relative things.

112
On a technical note

• To economists and any mathematicians here

113
On a technical note

• To economists and any mathematicians here
• I have in mind a class of problem where utility
  depends on relative actions.

114

• Imagine a person is choosing an action a to
  solve
• Maximize u(a) v(a a) c(a)
• where a is what everyone else is doing.

115

• Then if v is concave (convex) in status, it is
  rational to act similarly to (deviantly from) the
  herd.

116
Subconsciously, humans are frightened of falling
behind
117
Subconsciously, humans are frightened of falling
behind

• Bank lenders and brokers felt they had to match
  rivals.
• Home buyers paid extraordinary prices in order to
  keep up.  
• Money managers -- rewarded on relative
  performance against other managers -- copied what
  the others did.

118
When rewards depend on your relative position

• it will routinely be

119
When rewards depend on your relative position

• it will routinely be
• dangerous to question whether the whole groups
  activity is flawed
• rational simply to compete hard within the rules
  that govern success.

120
When rewards depend on your relative position

• it will routinely be
• dangerous to question whether the whole groups
  activity is flawed
• rational simply to compete hard within the rules
  that govern success.
• Correct dotcom analysts were fired.

121

• The pressures for conformity are strong.

122

• Herd behaviour is very often natural and
  individually rational. But it has the potential
  to be disastrous for the group.

123
To any students here

• These psychological forces are powerful and
  will come around again, a number of times, in
  your lifetime.

124

• Now to the housing market, which started our
  problems.

125
Real house prices in the United States over a
century
126
Real house prices in the UK 1975-2006
127

• So all the historical data suggested that house
  prices were unsustainable.

128

• Yet -- even two or three years ago near the
  peak -- few people spoke about the apparent
  likelihood of a crash.

129

• Yet -- even two or three years ago near the
  peak -- few people spoke about the apparent
  likelihood of a crash.
• another kind of herd action.

130
Unfortunately, we do have to have some lean years
131
Some ideas to end

132
Conclusions

• 1 In the next century, new measures of human
  well-being will be required.

133
Conclusions

• 2 As social scientists, we need to understand
  better the connections between mental and
  physical health.

134
Conclusions

• 3 Heart-rate and blood pressure data have
  particular potential in policy design.

135
Conclusions

• 4 Social scientists will, I believe,
  collaborate more with doctors and
  epidemiologists.

136
Conclusions

• 5 Economists need to incorporate herd
  behaviour more fully into standard models.

137
More broadly on well-being

138
More broadly on well-being

• Policy in the coming century may need to
  concentrate on non-materialistic goals.

139
More broadly on well-being

• Policy in the coming century may need to
  concentrate on non-materialistic goals.
• GNH not GDP.

140
Thank you.
141
Happiness, Money, and Your Heart Andrew
OswaldWarwick UniversityPapers downloadable at
www.andrewoswald.com

• I would like to acknowedge that much of this
  work is joint with coauthors Nick Powdthavee,
  David G. Blanchflower, and Rainer Winkelmann.