Home

Powdthavee (2007) Putting a Price Tag on Your Friends, Neighbours

June 22, 2007


How much is your happiness worth to the market? Is one person’s happiness worth less than another’s? With these finite monetary values in hand will the moral mathematics with which public policies are formed be guided by solely economic concerns? While reading University of London researcher, Nattavudh Powdthavee’s (2007) paper in which he places a monetary value on life satisfaction gained or lost by changes in social interaction, health, employment and marital status using shadow pricing algorithms, I had a sense of déjà-vu. And I thought of the Pinto. Borders between disciplines are blurring and economists are engaging with issues that were associated with psychology, philosophy, moral philosophy, virtue ethics and religion. In the end is Powdthavee setting the stage for a more sophisticated form of risk management?

Powdthavee concluded that social relationships with neighbours, family and friends have a positive effect that can be greater than an actual change in income. “[T]he finding that income only plays a small part in influencing our wellbeing is in fact one of the central conclusions reached in this paper. It appears that other possessions in life such as social relationships, long-lasting marriage, and good health matter a lot more to happiness than what average level of income can normally buy in the long-run (Powdthavee 2007).”

Powdthavee’s findings are largely a reiteration of his bibliographic sources which is a useful research tool in itself. Many of the references however are the same as those provided by Oswald on his content-rich site complete with full-text articles. Oswald’s (1997) paper Happiness and Economic Performance ” was based partially on the impressive and solid data compiled by the British Household Panel Survey, one of the longest running panel surveys in the world. Both Oswald and Powdthavee acknowledge the importance of Argyle’s (1989) early work.

In the 1970s using an internal cost-benefit analysis Ford Motor Company with President Lee Iacocca at the helm, placed a monetary value of $200,000 on a human life (Dowie 1977, Strobel 1980, McKenny 1997). They made business ethics history in 1977 under the headline of “Pinto Madness” when their immoral math was revealed explaining why they had waited eight years before correcting a fatal defect in the fuel system in the profitable Pinto, the biggest selling subcompact in America at the time. Ford engineers were cognizant during pre-production in the 1960s that the Pinto’s fuel system would rupture in a rear-end collision turning it into a deadly firetrap. Since its rushed release August of 1970 to compete with the popular Volkswagen Beetle, from 500 to 900 people burned to death in preventable accidents. Ford’s president, Lee Iacocca, riding on his enormous success with the Mustang, cut the production time from 43 months to 25. He was never told of the defect because his staff knew his motto, “Safety doesn’t sell.” The economic guru of the time was Milton Friedman who declared that the sole responsibility of business was to increase its profits. Ford’s accountants and engineers worked out an algorithm in which the placed a monetary value on the cost of a human life, the estimated number of lives lost, insurance costs versus the cost of correcting the defective fuel system. They concluded that based on this internal cost-benefit analysis that it wasn’t profitable to make the changes sooner than 1977 (Dowie 1977).

Strobel, legal affairs editor for the Chicago Tribune, published a scathing critique of the case study in Reckless Homocide: Ford’s Pinto Trial (1980) which McKenny summarized for a lecture entitled “Moral Reasoning: the Case of the Ford Pinto” in a Research Ethics Seminar.

A cost-benefit analysis prepared by Ford concluded that it was not cost-efficient to add an $11 per car cost in order to correct the flaws. Benefits derived from spending this amount of money were estimated to be $49.5 million. This estimate assumed that each death which could be avoided would be worth $200,000, that each major burn injury that could be avoided would be worth $67,000 and that an average repair cost of $700 per car involved in a rear end accident would be avoided. It further assumed that there would be 2,100 burned vehicles, 180 serious burn injuries, and 180 burn deaths in making this calculation. When the unit cost was spread out over the number of cars and light trucks which would be affected by the design change, at a cost of $11 per vehicle, the cost was calculated to be $137 million, much greater then the $49.5 million benefit (McKenny 1997).

What about those who are at risk to social exclusion by way of structural impediments such as the Inuit and First Nations in Canada? Their suicide rates are among the highest in the world. Where does that compute in this kind of risk management, this economic and moral reasoning?

And which kind of life satisfaction is Powdthavee measuring: hedonic happiness or Aristotle’s Eudaimonia or somewhere in between?

Keywords: social relationships, friends, neighbours, social capital, life satisfaction, shadow pricing, Social Support, Psychological Well-Being, psychology, happiness, Subjective Well-Being, social indicators, Duchene smile, Pan American smile, Eudaimonia, hedonic happiness,

Notes

“…yearbook photos are a gold mine for Positive Psychology researchers. ‘Look at the birdie and smile,’ the photographer tells you, and dutifully you put on your best smile. Some of us break into a radiant smile of authentic good cheer, while the rest of us pose politely. There are two kinds of smiles. The first, called a Duchenne smile (after its discoverer, Guillaume Duchenne) is genuine. The corners of your mouth turn up and the skin around the corners of your eyes crinkles (like crow’s feet). The muscles that do this, the orbicularis oculi and the zygomticus, are exceedingly difficult to control voluntarily. The other smile, called the Pan American smile (after the flight attendants in television ads for the now-defunct airline), is inauthentic, with none of the Duchenne features. Indeed, it is probably more related to the rictus that lower primates display when frightened than it is to happiness (Seligman 2002a:5).”

Seligman compared Aristotle’s concept of Eudaimonia, the Good Life, with its focus on the pleasures of contemplation, deep absorption and immersion, a state we now call “flow.” And during this state there is neither thought nor feeling with the Hollywood’s hedonic concept of happiness. The hedonic view of happiness embodied in the Goldie Hawn-Hollywood cheerful smile is based on maximizing pleasure through positive feelings and minimizing pain. In other words happiness equals pleasure. However, he argues, this “Duchenne smile” is highly heritable. But 50% of the population are just not very smiley and cheerful and won’t be even after acquiring skills like mindfulness, which affects only the upper part of the set range of positive affectivity (Seligman 2002b).

“So the core thesis in Authentic Happiness is that there are three very different routes to happiness. First the Pleasant Life, consisting in having as many pleasures as possible and having the skills to amplify the pleasures. This is, of course, the only true kind of happiness on the Hollywood view. Second, the Good Life, which consists in knowing what your signature strengths are, and then recrafting your work, love, friendship, leisure and parenting to use those strengths to have more flow in life. Third, the Meaningful Life, which consists of using your signature strengths in the service of something that you believe is larger than you are (Seligman 2002b).”

A RoperASW research project financed by Money found that “At a household income of about $50,000 a year, the happiness curve flattens out (Chatzky 2003).”

“Richard Easterlin (1974, 1995) was one of the first economists to study statistics over time on the reported level of happiness. His data came from the United States. Easterlin’s 1974 paper’s main objectives were, first, to suggest that individual happiness appears to be the same across poor countries and rich countries, and, second, to argue that economic growth does not raise well-being (Oswald 1997).”

“The British Household Panel Survey data show that income has no strong role to play, but that joblessness does. Clark and Oswald (1994) fail to find any statistically significant effect from income (Oswald 1997).”

“Reported happiness is high among those who are married, on high income, women, whites, the well-educated, the self-employed, the retired, and those looking after the home. Happiness is apparently U-shaped in age (minimizing around the 30s) (Oswald 1997).”

“The main objective of the BHPS is to further our understanding of social and economic change at the individual and household level in Britain and the UK. The BHPS is a research resource for a wide range of social science disciplines and supports interdisciplinary research in many subject areas. The BHPS has recently been refunded for a further five years to 2009 by the UK Economic and Social Research Council. By 2009, a total of 18 years of panel data will have been collected, making the BHPS one of the longest running panel surveys in the world (BHPS 2007).

“An American study of 22 winners of large lotteries found no clear difference between their happiness and that of controls. More generally, the relationship between wealth and happiness (or SWB – Subjective Well-being – in the jargon) seems difficult to quantify, but hard to discount. Some measures seem to confirm that it is a component of SWB – such as the survey which found that the rich are happy 77 per cent of the time, whilst the rest of us are happy only 52 per cent of the time. On the other hand, another survey found Nigerians measuring up more or less exactly to Germans in terms of per capita contentment (Argyle 1989).”



Bibliography and Webliography

Argyle, M. (1989). The Psychology of Happiness , Routledge, London.

BHPS (The British Household Panel Survey ) 1991-.


Chatzky, Jean. 2003. Ten commandments of financial happiness: The secret to being happy isn’t earning a lot – it’s gaining control over your finances.” >> Money Magazine. Uploaded October 2. Accessed June 20, 2007.


Chatzky, Jean. 2003. How much money do you really need to be happy?” >> USA WEEKEND. Uploaded Sept. 21. Accessed June 20, 2007.

Chatzky, Jean. 2003. You Don’t Have to Be Rich: Comfort, Happiness and Financial Security on Your Own Terms. Portfolio/Penguin.


Dowie, Mark. 1977. “Pinto Madness.” A Mother Jones Classic. September/October.

McKenny, Gerald. 1997. “Moral Reasoning: The Case of the Ford Pinto.in Vardi, Moshe Y. 1997. >> Research Ethics Seminar. Uploaded 1997. Accessed June 21, 2007.


Oswald, Andrew J. 1997. “Happiness and Economic Performance ”, Economic Journal, 107, 1815-31.


Powdthavee, Nattavudh. 2007. “Putting a Price Tag on Friends, Relatives, and Neighbours.: Using Surveys of Life Satisfaction to Value Social Relationships.” Forthcoming in the Journal of Socio-Economics. http://www.powdthavee.co.uk/resources/valuing_social_relationships_15.04.pdf

Seligman, Martin E. P. 2002a. Authentic Happiness : Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment.

Seligman, Martin E. P. 2002b. “Pleasure, Meaning & Eudaimonia.” >> Authentic Happiness. http://www.authentichappiness.sas.upenn.edu

Sharma, Vijai P. 2002. “A Genuine Smile Goes a “Long Way.” >> Mind Publications. Posted October 2002. Accessed June 20, 2007.

Strobel, Lee Patrick. 1980. Reckless Homocide: Ford’s Pinto Trial. And Brooks.

Vardi, Moshe Y. 1997. “The Case of the Ford Pinto.” >> Research Ethics Seminar. Uploaded 1997. Accessed June 21, 2007.

The Psychology of Happiness. >> Global : Ideas : Bank.

Powdthavee References


1. Argyle, Michael. 1989. The Psychology of Happiness. London: Routledge.


2. Argyle, Michael, and Furnham, Adrian. 1983. “Sources of Satisfaction and Conflict in Long-Term Relationships”, Journal of Marriage and the Family, 45:481-493.


3. Argyle, Michael, and Monica Henderson, 1985. “The Rules of Friendship”, Journal of Social and Personal Relationships, 1, 211-237.


4. Balatsky, Galina, and Ed Diener. 1993. “Subjective Well-Being Among Russian Students”, Social Indicator Research, 28, 225-43.


5. Becker, Gary S. 1996. Accounting for Tastes. Part I: Personal Capital; Part II: Social Capital. Cambridge, MA: Harvard University Press.


6. Blanchflower, David G., and Andrew J. Oswald. 2004. “Well-Being Over Time in Britain and the USA”, Journal of Public Economics, 88, 1359-1386.


7. British Household Panel Survey. Waves spanning the year 1997-2001 and 2002-2003; made available by the University of Essex through the ESRC United Kingdom longitudinal studies centre data archives.


8. Burt, Ronald S., 1987. “Strangers, Friends, and Happiness”, Social Networks, 9, 311-331. 27


9. Clark, Andrew E., 2003. “Unemployment as a Social Norm: Psychological Evidence from Panel Data.”, Journal of Labour Economics, 21, 323-351.


10. Clark, Andrew E., and Andrew J. Oswald. 1996. “Satisfaction and Comparison Income”, Journal of Public Economics, 61, 359-381.


11. Clark, Andrew E., and Andrew J. Oswald. 2002. “A Simple Statistical Method for Measuring How Life Events affect Happiness”, International Journal of Epidemiology, 31(6), 1139-1144.


12. Clark, Andrew E., Yannis Georgellis, and Peter Sanfey. 2001. “Scarring: The
Psychological Impact of Past Unemployment”, Economica, 68(270), 221-41.


13. Costa, Paul T. and Robert R. McCrae. 1988. “Personality in Adulthood: A Six-Year Longitudinal Study of Self-Reports and Spouse Ratings on the NEO Personality Inventory”, Journal of Personality and Social Psychology, 54(5), 853-863.


14. Darity, William Jr., and Arthur H. Goldsmith. 1996. “Social Psychology, Unemployment and Macroeconomics”, Journal of Economic Perspectives, 10, 121-140.


15. De Neve, Kristina M., and Harris Cooper. 1999. “The Happy Personality: A Meta-Analysis of 137 Personality Traits of Subjective Well-Being”, Psychological Bulletin, 125, 197-229.


16. Di Tella, Rafael, Robert J. MacCulloch, and Andrew J. Oswald. 2003. “The Macroeconomic of Happiness”, Review of Economics and Statistics, 85, 809-827.


17. Diener, Ed, and Eunkook. M. Suh. 2000. Culture and Subjective Well-Being. MIT Press.


18. Diener, Ed, Eunkook. M. Suh, Richard E. Lucas, and Heidi L. Smith. 1999. “Subjective Well-Being: Three Decades of Progress”, Psychological Bulletin, 125 (2), 276-302. 28


19. Easterlin, Richard E. 1974. Does Economic Growth Improve the Human Lot? Some Empirical Evidence. In P.A. David and M. W. Reder (eds.), Nations and Households in Economic Growth: Essays in Honour of Moses Abramowitz, Academic Press, New York and London.


20. Easterlin, Richard E. 1995. “Will Raising the Income of All Increase the Happiness of All?”, Journal of Economic Behaviour and Organization, 27, 35-47.


21. Ekman, Paul, Richard J. Davidson, and Wallace V. Friesen. 1990. “The Duchenne Smile: Emotional Expression and Brain Physiology, II”, Journal of Personality and Social Psychology, 58, 342-353.


22. Ferrer-i-Carbonell, Ada. 2005. “Income and Well-Being: An Empirical Analysis of
the Comparison Income Effect”, Journal of Public Economics, 89, 997-1019.


23. Fordyce, Michael W., 1985. “The Psychap Inventory: A Multi-Scale Test to
Measure Happiness and its Concomitants”, Social Indicators Research, 18, 1-33.


24. Fox, Craig R., and Daniel Kahneman. 1992. “Correlations, Causes and Heuristics
in Surveys of Life Satisfaction”, Social Indicators Research, 27, 221-234.


25. Freudenburg, William R. 1986. “The Density of Acquaintanceship: An
Overlooked Variable in Community Research?”, American Journal of Sociology,
92(1), 27-63.


26. Frey, Bruno S., and Alois Stutzer. 2000. “Happiness, Economy, and Institution”,
Economic Journal, 110(466), 918-938.


27. Gardner, Jonathan and Andrew Oswald. 2006. “Do Divorcing Couples Become
Happier By Breaking Up?”, Journal of the Royal Statistical Society: Series A,
169(2), 319-336.


28. Graham, Carol, Eggers, Andrew, and Sandip Sukhtankar. 2004. “Does Happiness
Pay? An Exploration Based on Panel Data from Russia”, Journal of Economic
Behaviour and Organization, 55(3), 319-342.
29


29. Helliwell, John F. 2003. “How’s Life? Combining Individual and National
Variables to Explain Subjective Well-Being”, Economic Modelling, 20, 331-360.


30. Helliwell, John F. 2006. “Well-Being, Social Capital, and Public Policy: What’s
New?”, Economic Journal, 116(510), C34-C45.


31. Helliwell, John F., and Huang, Haifang. 2005. “How’s the Job? Well-Being and
Social Capital in the Workplace”, NBER Working Paper, Series 11759.


32. Hughes, Michael, and David H. Demo. 1989. “Self-Perceptions of Black
Americans: Self-Esteem and Personal Efficacy”, American Journal of Sociology,
95(1), 132-159.


33. Inglehart, Ronald. 1999. Trust, Well-Being, and Democracy. In: Democracy and
Trust Warren, M.E., Cambridge: Cambridge University Press.


34. Kahneman, Daniel and Richard Thaler. 1991. “Economic Analysis and the
Psychology of Utility: Applications to Compensation Policy”, American Economic
Review, 81(2), pp. 341-346.


35. Kahneman, Daniel, and Richard Thaler. 2006. “Anomalies: Utility Maximisation
and Experienced Utility”, Journal of Economic Perspectives, 20(1), 221-234.


36. Kahneman, Daniel, Peter Wakker, and Rakesh Sarin. 1997. “Back to Bentham?
Explorations of Experienced Utility”, Quarterly Journal of Economics, 112, 375-
406.


37. Larsen, Randy J., Ed Diener, and Robert A. Emmons. 1984. “An Evaluation of
Subjective Well-Being Measures”, Social Indicators Research, 17, 1-18.


38. Layard, Richard. 2006. “Happiness and Public Policy: A Challenge to the
Profession”, Economic Journal, 116(510), C24-C33.


39. Moore, Simon, and Shepherd, Jonathan P. (2006). “The Cost of Fear: Shadow
Pricing the Intangible Costs of Crime”, Applied Economics, 38, 293-300.


40. Moulton, Brent R. 1990. “An Illustration of a Pitfall in Estimating the Effects of
30
Aggregate Variables on Micro Units”, Review of Economics and Statistics, 72,
334-38.


41. Myers, David G. 1993. The Pursuit of Happiness. Aquarian, London.


42. Oswald, Andrew J. 1997. “Happiness and Economic Performance”, Economic Journal, 107, 1815-31.


43. Pavot, William, and Ed Diener. 1993. “Review of the Satisfaction with Life
Scale”, Psychological Assessment, 5, 164-72.


44. Pezzini, Silvia. 2005. “The Effect of Women’s Rights on Women’s Welfare:
Evidence from a Natural Experiment”, Economic Journal, 115(502), 208-227.


45. Phillips, Derek L. 1967. “Social Participation and Happiness”, American Journal
of Sociology, 72(5), 479-488.


46. Pinquart, Martin, and Silvia Sorenson. 2000. “Influences of Socioeconomic Status,
Social Network, and Competence on Subjective Well-Being in Later Life: A Meta-
Analysis”, Psychology and Aging, 15(2), 187-224.


47. Powdthavee, Nattavudh. 2005. “Unhappiness and Crime: Evidence from South
Africa”, Economica, 72, 531-547.


48. Powdthavee, Nattavudh. 2006. “Are There Variations in the Psychological Cost of
Unemployment in South Africa?”, Social Indicators Research, forthcoming.


49. Putnam, Robert D. 1995. “Bowling Alone: America’s Declining Social Capital”,
Journal of Demography, 6, 65-78.


50. Putnam, Robert D. 2000. Bowling Alone: The Collapse and Revival of American
Community. New York: Simon and Schuster.


51. Rabin, Matthew. 1998. “Psychology and Economics”, Journal of Economic
Literature, 36(1), pp. 11-46.


52. Rosenberg, Morris, and Claire B. McCullough. 1981. “Mattering: Inferred
Significance and Mental Health among Adolescents”, Research in Community and
31
Mental Health, 2, 163-182.


53. Russell, Dan, Caloryn E. Cutrona, John Rose, and K. Yurko. 1984. “Social and
Emotional Loneliness: An Examination of Weiss’s Typology of Loneliness”,
Journal of Personality and Social Psychology, 46, 1313-1321.


54. Sales, Stephen M., and James House. 1971. “Job Dissatisfaction as a Possible Risk
Factor in Coronary Heart Disease”, Journal of Chronic Diseases, 23, 861-873.


55. Seidlitz, Larry, Robert S. Wyer, and Ed Diener. 1997. “Cognitive Correlates of
Subjective Well-Being: The Processing of Valenced Life Events by Happy and
Unhappy Persons”, Journal of Research in Personality, 31(1), 240-256.


56. Shedler, Jonathan, Martin Mayman, and Melvin Manis. 1993. “The Illusion of
Mental Health”, American Psychologist, 48(11), 1117-31.


57. Stutzer, Alois. 2004. “The Role of Income Aspirations in Individual Happiness”,
Journal of Economic Behaviour and Organization, 54(1), 89-109.


58. Stutzer, Alois, and Rafael Lalive. 2004. “The Role of Social Work Norms in Job
Searching and Subjective Well-Being”, Journal of the European Economic
Association, 2(4), 696-719.


59. Taylor Robert J., Linda M. Chatters, Cheryl B. Hardison, and Anne Riley. 2001.
“Informal Social Support Networks and Subjective Well-Being among African
Americans”, Journal of Black Psychology, 27(4), 439-463.


60. Thoits, Peggy A. 1983. “Multiple Identities and Psychological Well-being: A
Reformulation and Test of the Social Isolation Hypothesis”, American
Sociological Review, 48, 174-187.


61. Thoits, Peggy A. 1985. Social Support and Psychological Well-Being: Theoretical
Possibilities. In: Sarason, I.G., Sarason, B.R. (Eds.), Social Support: Theory,
Research and Applications. Martinus Nijihof, Dordrecht, Netherlands, 51-72.


62. Ueno, Koji. 2005. “The Effects of Friendship Networks on Adolescent Depressive

Flynn-Burhoe, Maureen. 2007. “Powdthavee (2007) Putting a Price Tag on Your Friends, Neighbours and Relatives.”

http://docs.google.com/Doc?id=ddp3qxmz_315qjsq58

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: