Happiness

In a supermarket, when you push the shopping cart (with food and stuff) to the cashier, you are given two choices:

1A) A plastic bag
1B) A gain of 10 cents

Which one will you choose?

Alternatively, under the same situation, if you are given another set of choices:

2A) A plastic bag
2B) Avoiding losing 10 cents

Which one will you choose?

For the first set of choices, i would choose 1A. For the second, i would choose 2B.

Hong Kong is debating about how to discourage the consumption of plastic bags, for the sake of the environment. Supermarkets are offering a cash rebate of 10 cents for each plastic bag saved. The scheme has not yet been, and will not ever be, popular because most people do not care about the gain of a few coins, and tend to choose 1A (Take the bag and forget about the rebate) rather than 1B (Not taking the bag and receiving a rebate).

Now, the Secretary of the Environment, Transport and Works Sarah Liao Sau-tung proposes that supermarkets should charge 10 cents a plastic bag, following similar measures taken in Taiwan. i guess that this scheme would work much more effectively because most people would tend to choose 2B (Not taking the bag and not charges) rather than 2A (Take the bag with a charge). The sense of losing something, however little, causes pain.

Suppose, if the supermarket set up two lines, queuing for each of the plastic bag policies. Those who choose 2B (Not taking the bag, and no rebate) would probably switch to the line for the first policy, as they won't take the bags anyway. But now, they may even collect some coins, available though the choice of 1B (Not taking the bag and receive a rebate). They would pick 1B. That's contradictory to the results mentioned earlier.

We are loss averse. We dislike a loss and we like a gain, but the magnitude is different. We hate a loss twice as much as they admire a gain, a survey by Daniel Kahneman of Princeton University suggests.

We defend what belongs to us, whether it being some coins or even respects from other people. However, our possessions hardly please us, as we easily get bored with them. To keep us happy, we need to constantly upgrade our possessions. Richard Layard, an economist at the London School of Economics, has his points. In his new book, "Happiness: lessons from a new science" raised the radical questions. What makes us happy? Is it higher income?

You are given the choices between living in two imaginary worlds, in which prices were the same:

3A) You get HK$32,500 a month, while other people get HK$16,250 on average
3B) You get HK$65,000 a month, while other people get HK$162,500 a month.

Which one will you choose?

i would choose 3A because that makes me feel more comfortable. If you do the same, please don't feel embarrassed. This question is put to a group of Harvard students (i converted the currency.) and a majority picked 3A.

People are no happier today than they were fifty years ago, even though average incomes have more than doubled. People are stressed out with the heavy workload and competing in the rat race of social status. The economy has improved, and people's living standards have improved, but people do not feel happier.

Layard argues that our happiness depends on what other people are doing. An employee who works until late in the evening gives pressure to other colleagues. A pay-rise for that employee makes him better-off, and at the same time, makes everybody else worse-off, even though no body gets a pay-cut. The one who works in longer hours are producing "pollution". The situation is like in a stadium, one watcher stands up to gain a better view. The ones behind him need to stand up too to keep watching. Eventually, everyone stands up. They all get the same view as if they all sit down, but they are all worse-off due to the extra efforts.

After work, people compete in consumption. A person who buys a BMW feels good in front of his friends, who drive Toyotas. Later, when all his friends upgrade to BMW, the happiness of the one who have bought the first BMW falls back to the initial level when all of them drive Toyotas.

People work excessively hard and consume more than necessary, just to chase one another. Take a break. If everyone stops the race, everyone will become happier.

Apart from the information and entertainment it brings, Layard says, TV brings discontent. In a typical drama, there are far more millionaires and beautiful ladies than in reality. Audiences automatically feel dissatisfied about their own wealth, body shapes and spouses.

Advertisement has its problems. Sweden bans commercial advertising targeting children under the age of twelve. Ads push us to buy more. It is often said that capitalism depends on advertising to achieve full employment. Without ads, less would be bought and there would be less production. Overall, we would have lower incomes. But, in return, we do not need to spend as much. That sounds not bad.

Apart from the peer comparison, our happiness depends on what we have in the past. It is often heard that people were happier in the 1960's and 70's, even though materials were less abundant than now. They were happy with a colorless TV.

Layard says our happiness about a new car and a new house lasts only one or two years. A couple of years later, we would be just happy as we used to be with the previous car and house. We overestimate the lasting effects of happiness, and that makes us pay too much for it.

GDP growth has been the major objective of many countries' economic policies. A policy inevitably has different impacts on different people. Economists would say the policy is all right if it would increase the overall income, because the beneficiaries could always compensate the sufferers to arrive in a win-win situation. But, when losses are valued higher than gains, as mentioned in the supermarket case, wealth reallocation, through taxation, would be a priority to increase the overall happiness of the society, although that might affect the incentives of wealth creation.

Is there anything wrong with mainstream economics that says the more income and consumption the better?

i agree with most of Layard's points. But his book seems to offer more questions than answers. As the book's title states, this is a new science, which is to be explored.

Apr 13, 2005
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