Tuesday, April 22, 2008

Are people desperate for security?

Richard Layard, an economist and member of the British House of Lords suggests that one of the “key facts about human nature” that emerges from happiness research is:
“People desperately want security – at work, in the family and in their neighbourhoods. They hate unemployment, family break-up and crime in the streets”(Happiness, Lessons from a new science, 2005, p7).
Layard goes on to ask: “So how can the community promote a way of life that is more secure?” The answer he provides is a defence of social security systems:
“It is precisely because people hate loss that we have a social safety net, and in Europe a welfare state. People want the security that these entities provide”.
Layard’s bottom line is: “if security is what most of us desperately want, it should be a major goal for society”(p168).

Layard seems to base his assertion that people desperately want security mainly on his interpretation of the results of research undertaken by Daniel Kahneman, a psychologist who was awarded the Nobel Prize in economics for his work on behavioural economics. Kahneman has found that most people have an aversion to loss, even when this involves relatively small sums of money. In one experiment Kahneman offers participants a bet on the toss of a coin:
“ they can either lose $10 or win $X. The factor by which X must exceed $10 provides an approximate measure of loss aversion. The median value in classroom demonstration is rarely far from $25 (‘Objective Happiness’, in Daniel Kahneman, Ed Diener and Norbert Schwartz (eds.), Well-being, The foundations of Hedonic Psychology, 2003.

Layard infers from such demonstrations that losses hurt much more than an equal gain helps. However, Kahneman has cautioned against such an interpretation. He cites some experimental evidence in favour of an alternative interpretation, namely that loss aversion could represent “a deeply ingrained conservative tendency in decision-making”(p 18).

Layard also cites some studies involving analysis of survey results to determine how subjective well-being changes in response to income changes. The results of these studies support the view that losses hurt more than gains. However, such studies do not establish that people are desperate for security. (The studies are cited on Layard’s web site.)

If welfare states make a big contribution to happiness this could be expected to show up in international comparisons. In his review of happiness research, Will Wilkinson reviewed several studies which have examined the link between the size of the welfare state and the level of welfare within it. The conclusion he draws from that review is that:
“if the redistributive openhandedness of the state has any effect on happiness at all, it is a surprisingly small one. When slightly different econometric techniques using slightly different databases generate weak correlations in opposite directions, the correct lesson to draw is that the variable barely matters at all” (In pursuit of happiness research, p 19).

If people are desperate for security it is reasonable to expect that very few people would be satisfied with life as a whole if they felt insecure about their futures. I have examined the relationship between assessments of future security and life satisfaction using the Australian data base compiled by the Australian Centre on Quality of Life, at Deakin University, in constructing the Australian Unity Wellbeing Index.

The data set used relates to information collected in 2005 and is publicly available. For the sample as a whole, the percentages with ratings of satisfaction with life as a whole were distributed as follows: 18% (ratings 1-6); 49% (ratings of 7,8); and 33% (ratings of 9,10).

The data set also contains responses relating to seven aspects of personal life – health, personal relationships, safety, standard of living, achieving in life, community connectedness, and future security (all rated on a 10 point scale). Using this data I have calculated the percentage of people who have high satisfaction with life as a whole (ratings of 9 and 10) among those who have low ratings on particular aspects (ratings from one to six). These percentages can be used as indicators of the extent to which each aspect is necessary for a high level of satisfaction with life as a whole. For example, if no-one with a low rating on a particular aspect of life had high satisfaction with life as a whole, this would indicate that the aspect concerned was essential for high life satisfaction. At the other extreme, if the incidence of high life satisfaction within this category was the same as for the sample as whole (33%) this would suggest that the particular aspect had no influence on satisfaction with life as a whole.

The percentages with high satisfaction with life as a whole among those with low ratings on particular aspects is as follows (ranked in order of priority): personal relationships 10.8%, achieving in life 11.8%, standard of living 12.8%, future security 15.6%, health 15.9%, community connectedness 19.0% and safety 20.3%. The results suggest that future security is less essential to subjective well-being than is standard of living. (The relative unimportance of safety is difficult to understand, but is consistent with the results of other research using this data base. See: Robert Cummins et al, Australian Unity Wellbeing Index, Report 16.1, 2007, p 7.)

The results seem to me to help in understanding why international studies have not shown average well-being to be considerably higher in countries with large welfare states. The efforts of governments to provide greater security would tend to displace the efforts of individuals and possibly detract from their assessments of what they are achieving in life. In addition, since welfare spending must be paid for by citizens, any perceptions of improvement in security might be offset by perceptions of a lower standard of living with little net effect on satisfaction with life as a whole. After all, most citizens are quite capable of providing for their own future security without having to pay additional taxes to the government so that it can do it for them.

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