Daniel Kahneman was the king of happiness—as a field of academic study

Kahneman posited that measurements of moments must be made in accordance with logical principles in order to generate a useful estimate of experienced utility.
Kahneman posited that measurements of moments must be made in accordance with logical principles in order to generate a useful estimate of experienced utility.

Summary

  • What drives emotional well-being would seem beyond the reach of objective analysis but he did establish a dominion over it. His academic work on happiness stands out.

Every year, the World Happiness Report ranks countries in terms of happiness by calculating their happiness scores. The six key variables that make up this index are GDP per capita, social support, healthy life expectancy, freedom, generosity and lack of corruption. These are mostly calculated on the basis of individual self-assessments. In contrast, looking back at the legacy of Daniel Kahneman (1934-2024), a 2002 winner of the Nobel Prize in Economics who fused Psychology and Economics, it’s noteworthy that, starting in the 1990s, a significant part of his work concentrated on the assessment of “objective happiness" through “moments" of life.

These efforts bear a strong connection with his and Amos Tversky’s paradigm-shifting research from the 1970s that pioneered Behavioural Economics. Perhaps following that idea, Kahneman provided a whole new meaning of ‘happiness,’ which is multifaceted and neither separate nor time-neutral. According to Kahneman, if a person wins a lottery twice in a row, for example, the winner’s total utility will be higher if the first win is $1,000 and the second is $1 million, rather than if the sequence is reversed.

Moments: What about them? According to a popular estimate, each of these little time-spans of psychological presence (as in ‘present tense’) might last up to three seconds. This would mean that at least about 500 million moments occur in a life span of 70 years. Kahneman created a moment-based conception of objective happiness, an aspect of well-being, sometime in 1999-2000.

He posited that measurements of moments must be made in accordance with logical principles in order to generate a useful estimate of experienced utility. Populations with different life conditions can have their well-being compared using the cumulative distribution of ‘moment’ utilities. On a 6-point scale, for instance, we may evaluate the proportion of time that the rich and poor spend at a utility level below 4.

Crucially, unlike other measures of well-being, Kahneman’s moment-based objective happiness does not include any retrospection at all; rather, it only depends on instant introspection.

In a 2006 paper published in the Journal of Economic Perspectives, Daniel Kahneman and economist Alan B. Krueger (1960-2019) examined whether or not a subjective survey can accurately gauge someone’s level of well-being. “[S]ubjective well-being measures features of individuals’ perceptions of their experiences, not their utility as economists typically conceive of it," they wrote. They suggested the U-index, a kind of misery index that quantifies the proportion of time spent in an unpleasant state and has the advantage of not requiring a cardinal understanding of people’s feelings.

But what’s the relationship between money and happiness? Kahneman and his co-authors examined the veracity of the widely held notion that affluence is positively correlated with happiness in a 2006 paper published in Science. They found a weak relationship between income and global life satisfaction or experienced happiness. “People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities," they stated. In their view, the role of attention helps explain why many people pursue high incomes, as their predictions of happiness increase on account of a ‘focusing illusion’, and why the long-term effects of income gains become relatively small as attention eventually shifts to less novel aspects of daily life.

Nevertheless, Kahneman’s research on happiness took a more objective shape when, in a 2010 paper with Angus Deaton, who would go on to win the Nobel Prize for Economics in 2015, Kahneman discovered a monetary “happiness plateau." Kahneman and Deaton reported that—in the American context, of course—a measure of emotional well-being (or happiness) increased but then flattened somewhere between an income of $60,000 and $90,000 a year ($75,000 being the median).

How influential was this study? Inspired by this paper’s findings, Dan Price, CEO of the Seattle-based company Gravity Payments, established a $70,000 minimum wage for all its 120 workers in 2015, almost doubling the starting salary. What’s more, Price cut his own salary from $1.1 million to $70,000 in order to pay for this move. Price’s 2020 book Worth It has a description of this Robin Hood-type corporate endeavour.

However, in contrast to Kahneman and Deaton’s 2010 findings, Matt Killingsworth of the University of Pennsylvania found a linear relationship between happiness and (log) income in a 2021 study that used experience sampling. Subsequently, in 2023, Kahneman, Killingsworth and Barbara Mellers published an adversarial collaboration (perhaps Kahneman’s last published paper) to resolve this dilemma. Re-analyses of the data showed that happiness rises with household income up to $100,000, after which it “abruptly" levels out in situations of extreme unhappiness. Further, happiness increases at an accelerated rate beyond $100,000 for the 30% happiest people. According to this study, Kahneman and Deaton may have arrived at the right conclusion if they had expressed their findings in terms of unhappiness as opposed to happiness, as their measurements were unable to discriminate among degrees of happiness because of a ceiling effect. Think about it.

Over the last three decades of his incredible career, spent at Princeton University, Kahneman, the King of Happiness, undoubtedly delivered an objective appraisal of happiness by integrating psychology and economics. His contribution to happiness research can be assessed coherently. Happiness, however, will remain elusive. And it’s possible that unhappiness is also something worth looking into.

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