The Economics of Happiness

Professor Homa Zarghamee, a member of the economics department, shoehorns yoga and writing poetry into a rigorous schedule of teaching and conducting research. “These are things that someone might say, ‘How do you have time,’” she says. “For me, these things are actually productive and enhancing because they make me happy and, with that happiness, I’m much better able to throw myself into my work when I need to. I’m much more efficient and much more productive.”

That’s not some far-flung theory, and Zarghamee does the research to back it up. She works in the field of happiness economics, studying how life satisfaction relates to work and wealth—an increasingly popular topic among scientists. She describes her work as a study of extremes, and examines both the most and least fortunate among us.

One might expect that greater wealth would lead to greater satisfaction, but the truth seems to be more complicated than that. Richard Easterlin, a University of Southern California professor and an influential figure in happiness economics, looked at both rich and poor countries and found that, over time, happiness and wealth don’t always go hand in hand. Yes, when you compare rich countries to poor countries at a single point in time, people in richer countries report being happier. But within a country, as it prospers, the professor famously offered, the average level of happiness doesn’t necessarily rise any higher. This is commonly called the Easterlin paradox.

Zarghamee and a coauthor, John Ifcher of Santa Clara University, recently looked at that question from another angle. When you compare rich countries to poor, are there more happy people in the rich, or just a few lucky souls driving up the average? As a country prospers, and its average happiness stays the same, does everyone’s happiness stay the same, and what happens to the extremes (both high and low) of happiness?

“What we found was that richer countries,” Zarghamee says, “in all the ways that you can look at it—getting richer, getting a higher per-capita income—within a country and across countries, are associated with the compression of happiness.” Meaning a smaller total number of happy people, and a smaller total number of unhappy people.

Why would that be? Zarghamee posits a few guesses. “At the top end, we might just get used to a new standard of living,” she says. “And that’s the new normal.” Or, she adds, some comparison group is getting richer, and people might be responding to that. “Maybe if all we care about is how much better we’re doing than other people,” she says, “there wouldn’t necessarily be a change in my happiness as a result.”

Zarghamee has also looked at how the rich spend. In an article with Andrew M. Goldstein, chief digital content officer of Phaidon and Artspace, the pair wrote about the “unprecedented sums” being paid for contemporary works. Among the possible reasons, the authors cite the “hedonic treadmill”: “As soon as we are better off, we adapt to that new level and start looking for further ways to increase our happiness.”

Zarghamee also researches underrepresented groups. She’s published on child labor with coauthor Kaushik Basu, chief economist of theWorld Bank, and recently, with John Ifcher, in the Journal of Happiness Studies, about single mothers. Traditionally women around the world report being happier than men. But, in recent decades in the U.S., women’s happiness has been on the downswing. That’s surprising, she points out, given the increase in freedoms women have secured over that time. However, Zarghamee noticed that single mothers haven’t followed the declining-happiness trend. Among the many possible reasons, she suggests it might have something to do with stigma—single mothers aren’t ostracized the way they once were. Or it could be that, with the increased availability of birth control, more single women are having babies by choice than they were decades ago.

Focusing on such diverse topics as the art market and single motherhood appeals to Zarghamee. She chose her field, in part, because of its breadth. In addition to an innate interest in people, she also possesses a roving curiosity. As an undergraduate at Cornell, she felt economics offered space to explore. (It also helped, she says, that she grew up in an Iranian family, where the study of math and science carried great weight, and went hand and hand with reading poetry and studying the arts.)

Zarghamee began her PhD work studying developing countries, which gave her a perspective on her own happiness because of the lack of freedom for women in many parts of the world. She says, “I would think, ‘Oh my God, here I am, of the richest .01 percent in all of history.’ And I’d also think about the fact that I’m a woman—I would have never been able to live the way that I do and have the choices that I have. ‘I’m not feeling good? How dare I?’”

She also sees the aforementioned benefits of being happy—how her hobbies help her be more efficient and productive at work. Her research suggests further pluses. In a 2011 study, Zarghamee and Ifcher looked at the impact of a good mood on on one’s patience in receiving a monetary prize.Those feeling positive, they found, were much more willing than those feeling negative to take a long view of their finances. “Initially ignored–and subsequently thought to be disruptive– emotions have historically received a bum rap from decision researchers,” she and her colleague write. But that’s no longer the case, they say.

“Being happy changes everything,” Zarghamee says. “It makes us better decision makers. It makes us much more pleasurable to be around, which makes for better relationships. It seems like even if it takes a little bit of a leap of faith or even if it takes a little bit of gritting your teeth for a second, you don’t need to wait for some big windfall to make you happy.We’re not talking about ecstatic happiness,” she notes, “just that little bit of happiness that makes you more satisfied with life.”