Saturday, October 27, 2007

Economics and Happiness

A commenter at Tyler Cowen's indispensable Marginal Revolution asks whether thinking like an economist results increases happiness, and then answers, well, yes, of course:

1. I cherish my consumer surplus. I value most of the stuff I buy way more than
what I have to pay for them; vanilla ice cream makes me happy beyond belief, and
the same is true for the music of Dream Theater and the (soon to be purchased)
Apple iphone. And what am I asked to pay for them? Peanuts.
2. I cherish my producer surplus. I am getting paid way, way more than the salary that would make me indifferent between supplying labour and staying at home.
3. I never have regrets: I did the best I could given the information available to me at the time. Judging I could have done better using information I acquired at a
later date makes as much sense as regretting the existence of gravity. On a
related topic, I understand the irrelevance of sunk costs.
4. While I do care for my welfare in relative terms, my welfare in absolute terms looms large in my utility function - and, boy, look how its value has been growing.
5. The selfishness of my fellow human beings does not make me anxious or depressed. Adam Smith (or was it Mandeville?) taught me that humans, selfish as they are, can make happy societies. And perhaps more to the point, they can make me happy.
I, for one couldn't agree more, even if I'm not an economist (though I do have at least some background in economics, so I'm not completely talking out of my ass). At the very least, attempting to evaluate the comparative value in every action or transaction makes you appreciate things a hell of a lot more, and take a hell of a lot less for granted.

On the other hand, as some of the commenters to Cowen's post point out, the fact that there are people who don't act and think like economists can be extraordinarily frustrating- but it's more the fact that you see people acting irrationally counter to their rational interests, and then watching as those irrational actions hurt not only the actor, but also other people (possibly including yourself).

Still, on the balance, basing your own decision-making and worldview on economics is pretty likely to increase your happiness. As Cowen himself notes:

Most generally, (good) economics insulates people from expecting the impossible, and that does make for greater happiness and contentment.