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Economics of Happiness

By Bruno S. Frey and Alois Stutzer

In their article, Economics of Happiness, Frey and Stutzer argue that the measurement of happiness constitutes a good approximation to utility (Frey and Stutzer 25-41). Put simply, human happiness is reliant on the concept of relative utility as understood by economists. The authors begin their article by explaining how economists can be deemed as fortunate especially because their micro-economic theory is based on relative utility. They further explain that even though it is commonly believed that utility cannot be measured in absolute terms, new research on consumer happiness argues for the link between economic theory, policy, as well as, utility. Accordingly, the authors define utility as the measurement of customer satisfaction. In economics, the term refers to the state at which customers enjoy total satisfaction from purchasing and consuming particular goods and services.

Fundamentally, the purpose of the authors in the article is to call attention to the importance of consumer happiness as is brought about by the theory of micro-economics, so as to, encourage economists to carefully consider relative utility as a key constituent in economics (Frey and Stutzer 25-41). Given this, economists can, therefore, speak evocatively of growing or declining utility, and for that reason, they can expose economic behavior in relation to the increment of consumer utility. To further explicate on the concept of utility the authors explain to their readers that utility is greatly affected by consumption, as well as, wealth and the amount of time set aside for leisure purposes. In philosophy, utility is closely associated with happiness, which further illustrates the association between consumer happiness and economics.

Accordingly, philosophers have argued for the maximization of total utility for the greatest happiness of individuals and the society as a whole. Relevantly, the authors argue that employment, income, and inflation have been the greatest determinants of happiness in society. They state that these three economic factors have impacted consumer utility and happiness throughout time as they affect consumer behavior in all parts of the world irrespective of the geographical location. Particularly, the authors argue that unemployment, income, and inflation affect the happiness and well-being of individuals in a society (Frey and Stutzer 25-41). However, because utility cannot be directly measured as previously stated, this measurement is established as a self-reported subjective report from individual consumers for the estimation of the degree to which the economic theory affects utility. Accordingly, individuals may experience increased utility when they are employed as compared to when they are not employed. This is because employment has been closely associated with the social welfare of individuals. Those who are not employed are more likely to have very low income, which in turn affects their access to the basic needs and requirements.

Employment grants individuals various things that bring about satisfaction such as access to medical facilities, as well as, all other social institutions (Frey and Stutzer 25-41). Income also plays a great role in consumer utility, as it is through the acquisition of income that individuals gain the power to attain their daily needs and requirements. Income equals money, and money is what is needed for the purchase of products and services for consumption. For that reason, individuals who have access to a substantial amount of income are more likely to experience increased happiness and utility as opposed to those who do not have access to income.

Conclusively, inflation is the third economic factor that Frey and Stutzer have associated with consumer utility and happiness. According to the authors, inflation affects consumer utility in that it determines what individuals have access to (Frey and Stutzer 25-41). When inflation occurs, the price of most goods and services increase, and because the income does not change as a result of inflation, individuals with a low income have limited access to certain products and services. This limited access, therefore, interferes with consumer utility as it reduces the amount of things that individuals have access to. As the authors explain, the concept of utility is applied by economists in economic models such as the indifference curve, which illustrate the permutation of products and services that individuals or the society accept as the commodities for the assurance of a level of satisfaction. Put simply, economists have used the concept of utility to determine some of the economic factors affecting utility and happiness, which according to Frey and Stutzer include employment, income, and inflation. In essence, relative utility is interpreted as a social welfare function and the institutions that make up the society are solely responsible for utility in society (Frey and Stutzer 25-41). The authors refer to this as welfare economics, and they argue that the institutions and authorities in a society determine the level of happiness and utility for individuals. The authors conclude their article by explaining that the extent of political centralization or decentralization has an impact on the happiness and utility of individuals in a society (Frey and Stutzer 25-41). the authors also explain that the type of democracy practiced in a country or state determine individual happiness as it determines the level to which individuals practice their economic rights.

Work Cited

Frey, Bruno S. and Stutzer, Alois. Economics of Happiness. World Economics: Journal of

Current Economic Analysis and Policy, 3.1. (2002): 25-41.