Introduction:

Happiness is considered by most people to be the ultimate goal in life; indeed, virtually everybody wants to be happy. The United States Declaration of Independence of 1776 takes it as a self-evident truth that the “pursuit of happiness” is an “unalienable right”, comparable to life and liberty. It follows that economics is – or should be – about individual happiness. In particular, the question is: how do economic growth, unemployment, inflation and inequality, as well as institutional factors and environmental conditions, affect individual well-being?

Economics for a long time has taken income, or Gross National Product, as a suitable, though incomplete proxy for people’s welfare. Happiness research shows that reported subjective well-being is a far better measure of individual welfare (see e. g. Kahneman et al. 1999, Frey/Stutzer 2002a, b, Layard 2005, Di Tella/MacCulloch 2006, Frey et al. 2007). Reported subjective well-being is the scientific term used in psychology for an individual’s evaluation of his or her experienced positive and negative affect, happiness or satisfaction with life. They are separate constructs. However, for simplicity and following the literature the terms happiness, well-being, and life satisfaction are used interchangeably in this paper.

Why do people experience a particular level of satisfaction with the life they lead? Happiness depends on a large number of determinants. Therefore, one of the most important tasks of happiness research is to isolate what conditions affect individual and social well-being to what extent. A convenient distinction is between physical and social wellbeing as goals which most people seek to pursue). An important non-material determinant of social well-being is the frequency of contact individuals have with family, friends and neighbors. A higher level of such social capital, in this volume) has been shown to strongly raise life satisfaction. Happiness research endeavors to determine quantitatively the relative importance of genetic, personality, sociodemographic, economic, cultural, political and environmental factors. The determinants of subjective well-being based on genetic and personality factors are largely outside the scope of economics. But they nevertheless matter, not least because the precision of the econometric estimates of the effect of the other determinants depends on the possible confounding role of personality differences. Research suggests, however, that the effects of demographic, economic, political and environmental factors on happiness are not much affected by personality differences. With regard to cultural factors, it is important to keep in mind that there are specific and distinct cultural meanings of happiness, and that the motivations and predictors of happiness may differ between cultures. The same holds for possibly different interpretations of numerical scales in different societies.

The idea that individuals perceive the achievement of happiness as the ultimate goal in life is not undisputed. Some scholars argue that long-run happiness is on the same level as higher order goods such as health, entertainment or nutrition. Happiness is not a static goal individuals are able to attain by aspiring to it. Rather, happiness is a side product of a “good life” producing satisfaction over the long run. Those who try to achieve happiness by purposive action are unlikely to attain sustained happiness. Evolutionary theory tells us that humans did not evolve in order to be happy but simply to survive and reproduce.

Despite these reservations, it can hardly be doubted that the achievement of happiness is an overriding goal in most people’s life. This idea goes back to the Greek philosophers and the writers of the Enlightenment. This idea becomes clear when the question is reversed: who really wants to be unhappy in life? Ultimately, in happiness research in economics the prevailing consensus is that reported subjective wellbeing measures is a most satisfactory approximation of the concept of individual utility. Data on subjective reported well-being can be fruitfully applied to empirical research on economic questions if they reflect all dimensions of trade-offs to the same extent.