How well can volunteering be explained by a naive economic model?

I should begin by defining what I mean by a naïve economic model. The naïve model I have in mind is a conventional neoclassical model, with a few bells and whistles added. The bells and whistles are necessary because so called ‘rational economic man’ who is the basis of conventional neoclassical economics doesn’t practice altruism. There are probably still some economists who claim that everything everyone does is for a selfish reason, but I am not one of them. While I recognize that a lot of people do a lot of noble things for their own satisfaction, I see no reason to doubt people when they claim to be motivated by altruism.


So, in terms of the naïve model I have in mind, the objective functions that individuals follow in making choices take some account of the well-being of other people (i.e. I am assuming interdependent utilities). That means that individuals might volunteer to do something even if they perceive that this involves some cost to their own well-being. The extent that they do this would depend on the net cost in terms of loss of individual well-being and the extent that their actions affect the collective benefit they seek to obtain by volunteering. The main potential source of net loss of individual well-being would be the value to the individual of opportunities foregone from use of time in volunteering, which would be offset to the extent that the individual obtains satisfaction from volunteering, or from recognition of her efforts. The effect of individual actions on the collective benefit being sought would depend on the size of the group seeking the collective benefit. In a large groups the actions of each individual tend make a small contribution to the objective being sought, so there would be a greater incentive to free-ride on the efforts of others.

The naïve model suggests to me that people would tend to volunteer to a greater extent when they had fewer opportunities for paid employment. It therefore suggests that volunteering would tend to decline if workforce participation increased. It also suggests that volunteering would be a substitute for other forms of charitable giving – people with time on their hands would tend to volunteer their time and people in well-paying jobs that give them little leisure would be more inclined to put their hands in their pockets to make financial donations. It also suggests that people would tend to volunteer to a greater extent in small, well-defined communities (e.g. country towns) where their efforts are more likely to be recognized that in major urban centres where individuals are more likely to get lost in the crowd.

How well does this naïve model explain volunteering in Australia? Not particularly well. The first point I noticed when I looked at the relevant section of the Productivity Commission’s recent report on ‘Contribution of the Not-for-profit sector’, is that there has been a consistent upward trend in rates of volunteering across all age groups over the last decade, although this has been offset to some extent by a decline in the average number of hours volunteered. This has occurred at a time when labour force participation has continued to increase.

As might be expected, ABS data show that volunteering rates are higher among women than among men. The difference is confined mainly to the 35-44 year age group – when most female volunteering could be expected to be associated with school canteens etc. People with young children are the group most likely to volunteer regularly, but they spend fewer hours per week volunteering than do people with older children and older people without children.

Again, as expected, the rate of volunteering is higher outside capital cities than within capital cities. But the difference is not huge. The rate for regular participation in voluntary work was 19% in capital cities and 23% outside capital cities in 2006.

The naïve model would not predict that employed people would be more likely to volunteer than unemployed people. For women, although those in full-time employment had the lowest rates of regular volunteering, those who were employed part-time had higher rates of regular volunteering than those classified as unemployed. For men, rates of volunteering for those in full-time and part-time employment were the same and higher than for those who were unemployed.

The most surprising departure from the naïve model relates to donations of money as a substitute for donation of time. I know such substitution does occur, but it doesn’t show up at an aggregate level in the ABS survey data. Volunteers are much more likely to have donated money or contributed financial assistance to someone outside the family in the last 12 months than non-volunteers.

In order to explain non-volunteering we seem to need a model of behaviour that recognizes that volunteers and non-volunteers have different personal characteristics. It seems that non-volunteers tend to have relatively weak links to the community in general. The evidence suggests that they are much less likely to have attended a community event recently. They are also less likely to agree with the proposition that most people can be trusted.

Other posts on volunteering:
This is the third in a series of post on volunteering. In the first post, Shona discussed her experience in a volunteer role in a community playgroup. In the second post I discussed some research on the determinants of volunteering.

What does research show about determinants of volunteering?

In the preceding post, What determines who volunteers?, Shona discussed her experience in getting parents to volunteer to help in running a play group. In this post I discuss some Australian research which suggests that volunteers fall into several distinct groups.


A paper by Sara Dolnicar and Melanie Randle, ‘What Moves Which Volunteers to Donate Their Time?’ uses data collected from a national survey of volunteer work conducted by the Australian in 2000 to segment the ‘market’ for volunteer work. The authors use motivations as a basis for statistical techniques that enable them to identify distinct subgroups of volunteers.

Six sub-groups were identified as follows:

• Classic volunteers are involved to do something worthwhile, gain personal satisfaction, and help others. They are older, less frequently active in the workforce, and very active in their volunteering efforts.

• Dedicated volunteers contribute the most hours per year to an average of six volunteering organizations.

• Personally involved volunteers appear to participate in volunteering temporarily, as long as (most probably) their child is part of an organization that relies on parental support.

• Volunteers for personal satisfaction and altruists (two sub-groups) are motivated by gaining their own satisfaction and represent the least distinct segments, with altruists doing the most work in the area of befriending and listening to people.

• Niche volunteers are young, new to volunteering, highly educated and state a variety of rather atypical reasons for volunteering, like feeling obliged to volunteer and having slid into volunteering rather passively, gaining work experience or as a result of religious beliefs.

These research findings are interesting but they don’t shed a great deal of light on the issues that Shona raised. The potential volunteers that Shona was most interested in would be in the ‘personally involved’ sub-group. The question is why some people become more involved than others.

Perhaps the people who are most involved are motivated, consciously or unconsciously, by the feelings they get from volunteering. Recent research findings suggest that it feels good to be good (but I am not sure that we needed researchers to tell us that).

It seems to me that human nature has evolved in such a way that people have a natural desire to contribute voluntarily to activities that are best undertaken collectively. If that makes sense then perhaps it would be more productive to try to explain why a substantial proportion of people are reluctant to volunteer. One idea that has crossed my own mind from time to time as a member of voluntary organizations is that I don’t want to be left ‘holding the baby’. (That expression might not be entirely appropriate in a discussion of volunteering in play groups, but for some reason I can’t resist using it.) It may be worth exploring whether people would be less reluctant to take on onerous voluntary roles if they had some assurance that they could readily pass them on to other members after a defined period.

What determines who volunteers?

This post stems from a discussion I had with Shona a couple of days ago. I had to admit that although I strongly support volunteering I don’t know much about it, or about the characteristics of people who volunteer versus those who free ride on the efforts of others.


Shona agreed to write this guest post about her experience in the hope that it might lead to further discussion of this important issue. Shona writes:

I’ve been involved in a volunteer role at my local playgroup for two and a half years now and over that time I have taken an interest in the types of people that volunteer compared to those that don’t.

The whole point of a community playgroup is that everyone pitches in and helps, thus keeping operating costs to a minimum whilst providing maximum benefit to the kids. There are parents and carers that take on more formal roles, key holders, treasurer, secretary and co-ordinator. But this in theory should simply provide other parents and carers a framework in which to enjoy playgroup. Simple game theory in practice – everyone contributes a small thing for everyone’s greater gain.

Every time someone vacates one of these formal roles, it is my job as co-ordinator, to fill them. I watch people, I see who comes regularly, I look at who pitches in. I also notice those that turn up late, leave early, and make sure they are no-where to be seen when help is required (we’re not talking anything major here, just cutting up fruit for morning tea, putting toys away, etc).

My approach is to narrow down suitable candidates; it is futile asking the group as a whole – no-one ever comes forward, in fact, if we were in a school yard, you would actually see a line of individuals take a huge theatrical step backwards. I approach people individually, quietly, and ask them if they would take on a small role. I think I have about a 30% success rate. The interesting thing is the dynamics of the group that says yes and the dynamics of the group that says no.

The people who I think will say yes can be described as follows. They have a child of an age where they are not clingy or over-dependent on their carer. They attend regularly, either weekly or more than once a week and know many of the other attendees. They have also been attending for more than 6 months and therefore know how the playgroup works. They attend both for their kids benefit, and their own – they have made friends and appreciate the adult interaction. They generally have good communication skills and have contributed more than their share during their visits.

Amazingly, after they say no (on the grounds that they don’t attend regularly), they stop attending as regularly as if to prove they can’t commit to something.

The people who do say yes surprise me every time. They often have two kids, the youngest usually new-born or very young. They are often new members, but do attend regularly, usually more than once a week. They don’t necessarily know how playgroup works but want to learn. I feel guilty accepting their gracious help – but I guess I am one of those people too.

In writing this, I realise it is quite clear cut. Those that have attended for a long period are used to free riding – why contribute? Someone else will step up. Those that are new aren’t aware of the free-riders, they want to contribute and make connections within the community. Finally, I suspect that the longer a person stays in any of the formal roles, the less likely other people are likely to step into those roles. Perhaps we should only have day-leaders (the face of those official roles) on a very short rotation.

My two years are up, it is time to move on, but any tips I can provide my successor (should I be able to find one), would be more than welcome.

What do NSW solar panel owners have in common with mining investors?

‘So you think I am a cranky old fool, do you?’ I knew it was Jim before I turned around to see who was talking. I referred to Jim as a cranky old fool on this blog a couple of weeks ago. At this point I should make sure readers are aware that this Jim is unlike any other Jim I have ever met. He is a royalist. He thinks incentives to put solar panels on roofs of houses are an abomination because the high costs of this method of generating electricity are borne by taxpayers and other users of electricity. And he asks difficult questions. A lot of the people I know avoid Jim when they see him coming. Perhaps that is why he sneaks up on people and just starts talking.


Anyhow, Jim isn’t such a bad old coot. He wasn’t even particularly upset with me for calling him a cranky old fool. After he had my attention, he said: ‘You know that photo of Sydney you have on your blog – the one with the cloud over most of it?’ I replied: ‘Yes, I’ve been thinking about replacing it with a photo I took on a sunny day, now that the dreadful Labor government has been swept out of office’. Jim said: ‘Don’t do that. Find a photo with a darker cloud!’

I was surprised to hear this from Jim. I had never thought of him as a Labor supporter. So, I asked him to explain. As I did so I couldn’t help looking at my watch. I knew I was about to be sucked in to a discussion that might take some time.

Jim asked: ‘What do you think of the decision of the New South Wales government to reduce the feed-in tariff that they will pay people who have installed solar panels?’ I said I didn’t have an opinion. I added that I thought the decision would make him happy because I remembered that he thought solar panels were an abomination.

Jim scowled and just asked another question: ‘What do you think of the proposed mining rent tax?’ I explained that I thought the latest proposal wasn’t quite as bad as the tax first proposed last year. I mentioned something I wrote last year explaining that the main problem was sovereign risk. I argued that when governments enter into agreements with mining companies they should honour those agreements whatever happens, rather than insisting on a higher share of profits because the price of minerals has gone up. I concluded my little speech by suggesting that if this tax is introduced investors will become more wary about signing any kind of agreement with any government in Australia.

Jim said: ‘That is precisely my point about the solar panels. The feed-in tariff specified in those agreements must be one of the worst deals that any government has ever made. But for a new government to just tear up the agreement is one of the lowest acts of bastardry that has ever been perpetrated on investors anywhere in the world’.

I agreed that the decision was dodgy but I said I didn’t think the rating agencies would downgrade the NSW government because of it. It might actually improve the finances of NSW. Jim said: ‘Look, you aren’t going to try to tell me that any investors should take any notice of the rating agencies after the global financial crisis. The real issue is whether anyone can be confident that the people running the NSW government at present are any more trustworthy than Jack Lang. Do you really think these people are more trustworthy than Jack Lang?’

Jim asks difficult questions. Jack Lang was the premier of NSW during the depression in the 1930s. One of the things he is remembered for is his efforts to stop payment of interest to overseas creditors until the financial situation improved in NSW. If he had succeeded this would have done enormous damage to Australia’s reputation as a destination for foreign investment. On the basis of recent performance I think the politicians running NSW at present and those currently running the Commonwealth government might default on interest payments if they had to deal with the kind of economic crisis confronting Australian politicians in the 1930s.

I told Jim that people would like him a lot more if he didn’t ask difficult questions.

Postsript: 7 June 2011

When I saw Jim this morning I asked him what he thought of the decision of the NSW government to honour their contractual obligation to people who had installed solar panels. Jim said he would have been more impressed if the Premier had made the decisions to back down because his conscience was troubling him rather than because he didn't have the numbers in the upper house to pass the legislation.

I suggested that in any case the cloud had lifted over Sydney and that I would find a better photo to put on my blog. Jim said: 'Don't do that! There is a new cloud over Sydney. They have decided to award the Sydney Peace Price to Noam Chomsky'.

I don't know who 'they' are, but if 'they' are interested in promoting peace 'they' should try to avoid provoking people like Jim.

Should we view human flourishing in terms of psychology, capablility or opportunity?

This question may seem like just another intellectual puzzle, but it is actually has important implications for the way we view public policy issues. My bottom line is that the way we answer this question if we are thinking about the flourishing of a close relative or friend might be quite inappropriate if we are thinking about the development of public policy.

I think the best place to begin my explanation is with a brief discussion of the three different perspectives. I don’t wish to imply that these are the only ways of looking at human flourishing – they just seem highly influential.

Martin Seligman is a leading exponent of the psychological perspective. In his recent book, ‘Flourish’, Seligman suggests that well-being theory ‘is essentially a theory of uncoerced choice, and its five elements comprise what free people will choose for their own sake’. The five elements he identifies are: positive emotion (pleasant experiences, happiness and life satisfaction); engagement (the flow state); relationships (positive relations with other people); meaning (belonging to and serving something bigger than yourself); and accomplishment (success, achievement, mastery). In an earlier post I suggested that Seligman has missed another important element that people seek for its own sake, namely control over their own lives. A more fundamental criticism of this approach is that it ignores all elements of well-being other than psychological well-being. For example, it seems reasonable to suppose that free people would usually choose to be healthy rather than ill even if their health made no contribution to their psychological well-being.

The capability approach has been developed by Amartya Sen, an economist. Sen argues that a person’s capability reflects the alternative combination of functionings the person can attain and from which he or she can choose one collection. Functionings include objective criteria as being adequately nourished and being in good health as well as a range of other factors such as achieving self-respect and being socially integrated. In his contribution to ‘Capabilities and Happiness’ (2008, edited by Luigino Bruni et al) Sen notes that individuals may differ a good deal from each other in the weights they attach to different functionings. He seems unwilling, however, to leave the weighting exercise to the individuals concerned. He suggests that ‘the weighting exercise has to be done in terms of explicit valuations, drawing on the prevailing values in a given society’. He also refers to our capability ‘to achieve functionings that we have reason to value’.

The concept of opportunity proposed by Robert Sugden, also an economist, rests on ‘an understanding of persons as responsible rather than rational agents’. According to this view individuals may sometimes act foolishly but nevertheless accept responsibility for the consequences of their actions. The term ‘opportunity as mutual advantage’ expresses the idea that ‘one person’s opportunities cannot be specified independently of other people’s desires’. The freedom of some other person to seek out and take advantage of opportunities for mutual benefit encompasses his or her freedom to seek out and take advantage of opportunities to benefit you and me. Sugden implies that if everyone has opportunity in this sense, then you and I should see ourselves to be part of an economic system that is full of people who can expect to be rewarded for finding ways to benefit us (‘Opportunity as mutual advantage’, Economics and Philosophy (26)).

If we are considering the well-being of relatives and friends we might consider that opportunity, capability and psychology are all relevant to our assessment. For example, we might be able to think of people who have high levels of psychological well-being even though they have relatively low capability in some respects because we consider that they have not made good use of the opportunities available to them. We might be able to think of others who are unhappy even though they have high levels of capability and have had superior opportunities in life.

However, from a public policy perspective, what business does the government have in trying to improve the capability or psychological well-being of a person if this interferes with his or her status as a responsible agent? We might think that the capability and psychological well-being of such people would be improved if they drank less alcohol or gambled less, for example, but as far as I can see we have no right to prevent them from spending their income as they choose.

The situation becomes rather different if the government is offering some kind of benefit that is intended to improve the capability or well-being of some group. In that situation, it seems to me that the donors (taxpayers) have every right to attach conditions to the proposed benefit and the intended beneficiaries have every right to refuse to accept it if they don’t like the conditions attached.


Some might suggest that the alternatives to accepting a benefit with strong conditions attached could sometimes be so unpalatable that the conditions amount to coercion. I don’t accept that economic incentives ever force people to do anything. Nevertheless, if a person chooses to die rather than accept the conditions attached to a benefit, the question arises of whether this should be viewed as the choice of a responsible agent. Paternalistic intervention may be warranted to protect people who are not of sound mind as well as children.

However, there are also difficult issues involved in considering government proposals to improve the psychological health of children. The recent Australian Government Budget proposes a health and well-being check for 3 year old children on the grounds that ‘around 15.4 per cent of all children and adolescents (those aged up to seventeen years) have a mental disorder’. Internationally renowned experts are apparently telling the government that ‘there is a growing body of evidence showing that you can identify kids with (or at risk of) conduct disorders or poor development very early – from three years old’. The government claims: ‘Intervening early means building strong and resilient children, and avoiding behavioural or mental health issues that can persist for the rest of a person’s life’.

Should I be concerned about this proposal? Perhaps it just offers parents better opportunities to ensure that children get services necessary for their psychological wellbeing. On the other hand, it could be the thin end of a large wedge leading to greater use of pharmaceutical products to control behaviour of children and greater government intervention in family life. I wish I could be more confident that the proposed intervention will actually build strong and resilient children.

Postscript:
On reflection, the paragraph beginning 'Some might suggest that the alternatives to accepting a benefit ... ' doesn't adequately capture the ideas I would like to express. In my view, although welfare systems should be directed to a large extent toward helping people to help themselves, communities should have an over-riding commitment to meeting basic needs of people who have no other means of support.

Has Australia's media dropped the ball in reporting on Asia and the Pacific?

I don’t normally write about the media, but there are times when it seems to be necessary for me to write about the things that are on my mind before I can think about much else.

I was prompted to begin thinking about this question on Sunday by a post by Jim Belshaw on his blog, Personal Reflections. Jim’s post was about the recent ASEAN Summit chaired by the Indonesian President, Susilo Bambang Yudhoyono (SYB). The President’s speech mentions that Indonesia is in the process of finishing the Master Plan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia (Master Plan for Acceleration and Expanded Economic Growth of Indonesia/MP3EI), intended to boost the development of six economic corridors in Indonesia. The President claims that this initiative will awaken ASEAN’s economy and speed up the construction of ASEAN connectivity as well as boosting Indonesia’s national economy and intra-Indonesian connectivity.

Jim Belshaw mentioned that he didn’t know what the six economic corridors in Indonesia were and implied that the Australian media’s reporting and analysis of events in Indonesia and the region is deficient. He also notes that there seemed to be no coverage of the ASEAN conference in the Australian media.

I didn’t know what the six economic corridors were either. It turns out that each of the economic corridors corresponds to a region of Indonesia and its economic specialization; for example, as might be expected Java has a focus on industry and services and other islands focus more heavily on agriculture, mining etc. The planning has a strong emphasis of infrastructure development and connectivity.

The planned areas of economic specialization seem to make sense in terms of comparative advantage. That raises the question in my mind of why the Indonesian government thinks it needs a Master Plan. Perhaps it is best viewed as a political hand waving exercise rather than an exercise in constructivist rationalism. A few years ago, when Australian media seemed to report more thoroughly on Indonesia, there was a strong focus on whether the central government would be able to maintain legitimacy in a nation with such disparate elements located on different islands. Perhaps the Master Plan should be viewed in that context as a concept that might help to instil or maintain common purpose. But SBY is presenting the plan as also having implications for ASEAN connectivity. Connectivity suggests to me that fibre optic cable might play a large role in the plan. Who knows what it means? What we do know is that the success or otherwise of economic development in Indonesia has important implications for Australia.

Shortly after reading Jim Belshaw’s blog I visited the East Asia Forum and read a post by Peter Drysdale on why the Doha round of international trade negotiations matters to Asia and the Pacific. Drysdale writes:

“In Washington, the Trans Pacific Partnership (TPP) is all the rage. Does it matter if we get yet another pseudo ‘free trade’ agreement, between the US and group of eight partners who in the total scheme of things are pretty insignificant?
It certainly would matter, being absent from Doha.
A rum deal like the one that is shaping up might be of little economic consequence (of somewhat more economic consequence in the unlikely event that Japan signed on) but it would be of considerable political consequence.
In the context of an insecure global trading system it would be a bold statement taking the world in another direction. It would drive a wedge down the middle of the Pacific, not only or mainly economically but also politically — between the United States, its partners and China. It would entrench the adversarial political psychology that is developing in US-China relations in a way that would be very difficult to unravel for a long time. That might matter less if the WTO was not also in disarray. It matters a lot, as that prospect grows daily”.

I think Peter Drysdale has good reasons for concern, but I would also like to see discussion of the implications of Washington’s focus on TPP in the Financial Review and The Australian – to name a couple of papers that I read.

That got me thinking about media coverage of other issues in the region that have implications for Australia. The issue that is probably most important to us is the future of economic development in China and in particular how long China will be able to maintain the economic strategy adopted post-GFC of a very high level of investment in infrastructure. A lot depends on the quality of the infrastructure investment that is being undertaken. I have probably seen general discussions of the issues involved in the Australia media, but if the investment program begins to produce a lot of white elephants I am not confident that I will see that reported and discussed in the Australian media before it begins to impact out terms of trade.

What is going on in India? I was just starting to get used to the idea of India as a high-growth country and a rapidly expanding market for Australian exports, and then it hosted the Commonwealth Games. The games themselves seem to have been a success, but problems with their organization have raised questions about the quality of public administration in India. It is hardly news that the quality of public administration is poor anywhere in the world, but governments do tend to try to put their best feet forward when organizing major international events. Does the quality of public administration in India actually make much difference to India’s future growth prospects? That question might be a bit too profound for the media to tackle, but perhaps Australian journalists should be discussing evidence of whether poor quality of public administration in India is having any effect on foreign investment in that country.

Then there is New Zealand. A few years ago the NZ government set up a Taskforce to advise it on policies it could adopt to catch up to Australian living standards by 2025. This 2025 Taskforce submitted a couple of reports, but the NZ Prime Minister announced a few days ago that it will now be closed down. What does that mean? Has the NZ government abandoned all hope of catching up to Australia’s living standards? If so, what are the implications for Australia? Perhaps it just means that we will be able to look to NZ as a source of labour, the price of NZ sauvignon blanc will remain within our reach and even more of us will be able to afford to have holidays there beyond 2025. Is it too much to ask for a less frivolous discussion of the relevant issues in Australia’s news media?

Is the Australian media to blame for its poor coverage of the Asia and Pacific region or does this just reflect the ‘insular internationalist’ perspective of Australians? The term ‘insular internationalist’ is one coined by Michael Wesley, who observes that Australians have become wealthier and safer than ever before by enmeshing with the world – becoming more a part of the world economy than ever before. He says:

‘We travel more than we've ever travelled before; we have more people who were born outside of this country living among us than ever before, and yet you can see a steady trend of a withdrawal of interest about the outside world, a withdrawal of real skills for dealing with the outside world among the general population in Australia’.

I don’t think that Australians are as insular as Wesley suggests. It seems to me that a substantial and growing number of us will look elsewhere if we can’t find decent coverage of Asia and the Pacific in the conventional Australian news media.

Did J S Mill really claim that violations of free trade have nothing to do with liberty?

‘Again, trade is a social act. Whoever undertakes to sell any description of goods to the public, does what affects the interests of other persons, and of society in general; and thus his conduct, in principle, comes within the jurisdiction of society’ … . The ‘so-called doctrine of Free Trade … rests on grounds different from, though equally solid with, the principle of liberty … . Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraints qua restraint, is an evil: but the restraints in question affect only that part of conduct which society is competent to restrain, and are wrong solely because they do not really produce the results which it is desired to produce by them.’ J S Mill, ‘On Liberty’, 1859, Ch. 5

This passage has puzzled me since I was a young man. It seems to me that individual liberty is obviously violated when governments intervene in trade. If a government imposes a tax on a good for the purposes of assisting the producers of a close substitute, this must be just as much an infringement of the liberty of consumers as when it imposes a sin tax on a good to discourage consumers from purchasing that good.

However, it is now clearer to me what Mill was trying to say. The first key to the puzzle is that Mill refers to ‘the principle of individual liberty’ rather than just ‘individual liberty’. What Mill means by the principle of individual liberty is explained a couple of paragraphs earlier as the maxim ‘that the individual is not accountable to society for his actions, in so far as these concern the interests of no person but himself’. According to that view, the individual should be accountable to society for ‘actions that are prejudicial to the interests of others’.

Friedrich Hayek and others have noted that the distinction that Mill sought to make between actions that affect the acting person and actions that affect others is not very useful because there is hardly any action that may not conceivably affect others in some way. According to Hayek the relevant issue is whether it is reasonable for the affected persons to expect legal protection from the action concerned (‘Constitution of Liberty’, 1960, p 145).

Now, in the paragraph immediately prior to his discussion of international trade, Mill acknowledges that damage to the interests of others does not necessarily justify the interference of society. In this context he discussed the views of society toward various forms of contest in which people who succeed benefit ‘from the loss of others’. He notes: ‘society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering’.

The second key to the puzzle is that in the passage quoted above Mill suggests that all restraints are evil. If Mill is referring to coercion, as seems likely, then it seems to me that at this point he is close to recognizing the merits of the definition of liberty that Hayek later adopted. Hayek defined liberty as ‘a state in which coercion of some by others is reduced as much as possible in society’ (‘Constitution of Liberty’, p 11). This definition meets Mill’s desire to acknowledge that restraints are necessary to protect citizens from force and fraud, and may be appropriate under some other circumstances where individual conduct adversely affects the interests of others.

Mill seems to have been attempting to establish that the attitude of society toward individual conduct should depend on where it lies on a spectrum. At one end of the spectrum, where conduct affects only the individual actor, other people have no right to intervene. At the other end, force and fraud should obviously be illegal. At other points on the spectrum the effects of individual conduct on the welfare of society are ‘open to discussion’. (Mill uses these words are used in the introductory paragraphs of Ch. IV.)

In asserting that the ‘doctrine’ of free trade rests on equally solid ground to ‘the principle of liberty’ Mill is clearly implying that in our discussion of trade there should be a strong presumption that free trade enhances the general welfare of society. It follows that he must believe that government intervention in trade is generally an unwarranted form of coercion. That seems to me to be just another way of saying that such intervention is generally an unwarranted interference with individual liberty.

Should I be writing about the US peace index or the royal wedding?

I ran into Jim this morning. It must be over a year since I have seen him. He asked me what I was doing these days. I told him that I was writing a book about how we need to be in control of our own lives in order to be truly happy. But Jim wasn’t particularly interested in my book. He was more interested in giving me gratuitous advice on how to become a successful blogger.


Some readers might remember Jim as a cranky old fool who asks awkward questions and urges me to take up unpopular causes on my blog. I can refer to him as a cranky old fool now because he told me that he stopped reading my blog a few months ago. ‘It’s too boring’, he says. ‘Why don’t you blog about contemporary events like the royal wedding instead of carrying on with all that philosophical stuff?’

I told Jim that today I was proposing to write about something that has a great deal of contemporary relevance - the US Peace Index (USPI) that was released a few weeks ago by an organisation called Vision of Humanity. I explained that this index compares the peacefulness of each of the states in the US. It defines peace as the absence of violence and ranks the states using a range of indicators including homicide rates, violent crimes, percentage of the population in jail, number of police officers and availability of small arms.

Jim said: ‘Well, that might be interesting to people in America, but I don’t see how that is of interest to anyone in Australia - unless perhaps they are thinking taking their family to Disneyland’. He added: ‘I wouldn’t go for a holiday in America myself, even though it has become cheaper over the last few months. The place is too violent for me’.

I tried to explain that the USPI showed that there were large differences between the peacefulness of different states in the US and that the most peaceful states in the north-east of the US are actually as peaceful as Canada and some of the European countries. The words Jim used in his response are not printable here. Let me just say that he used some forceful words to suggest that nothing I could say would alter the fact that by comparison with other developed countries the US has an appalling record in terms of homicide rates and incarceration rates.

It was obviously time for a change of subject, so I asked Jim what he thought I should be writing about the royal wedding. Jim said: ‘Well, you should be underlining the significance of the occasion. It isn’t every day that the future king of Australia is married’.

I told Jim there was no way I was going to write that sort of nonsense. I told him that in my view the concept of an hereditary head of state was indefensible in any case. Sometimes we strike it lucky, as in the case of Queen Elizabeth, but the chances of fate giving us a really good head of state must be fairly remote - even allowing for the possibility that we might be selecting from a superior gene pool and that there could be some advantage in training people for the job from birth. Then I suggested that it was just laughable that an independent country like Australia should still have the monarch of another country as its head of state.

I had expected that Jim was going to respond to the effect that ‘if it ain’t broke don’t fix it’. I was geared up to give some reasons why the system is broken and does need fixing to ensure that we continue to have a head of state who is respected by the Australian people.

Well, Jim didn’t respond as I had expected. He just said: ‘So I guess you won’t be watching the wedding on TV then will you?’

I just mumbled and walked off. The truth is that I will be watching the wedding on TV. This is closest I can get to observing a medieval pageant complete with a golden coach and an Archbishop wearing a funny hat. You don’t have to be a monarchist to enjoy a spectacle like this. By the way, I am glad that Will and Kate are getting married!

Why can't we have a realistic basis for optimism?

In his book, ‘Flourish’, Martin Seligman writes:

‘I am all for realism when there is a knowable reality out there that is not influenced by your expectations. When your expectations influence reality, realism sucks’ (p 236-7).

I have been thinking about the sentiments in that paragraph at various times over the last couple of days. My initial reaction was that it was wise as well as well written. The problem I now have with the passage is that in the context in which it is written it seems to imply that a realistic frame of mind is inconsistent with optimism. It seems to me that if we are realistic about the right things this can provide us with a stronger basis for optimism. (As an aside, the grammar check in Microsoft Word doesn’t agree with me that the passage was well written. It calls the second sentence a fragment and suggests that it be re-written. Robots have a tendency to be pedantic!)

I will give an example to explain why I think a realistic frame of mind can be optimistic and then consider the broad context in which the paragraph was written. A prime example of expectations influencing reality is in relation to our own behaviour e.g. in playing a sport. If you decide to be realistic about how you will respond to a given situation in future you might think that the most likely outcome is that you will perform in much the same way as you have in similar situations in the past. That might make tend to make you pessimistic about your prospects for improvement. Yet, when you think about it more deeply, a realistic frame of mind could enable you to make use of your inside knowledge of your own potential and your intentions in developing your expectations of your future performance. Your inside knowledge might thus provide you with a realistic basis for more optimistic expectations.

The context in which Seligman’s paragraph appears is in a discussion of the influence of expectations on capital markets and individual health outcomes. The evidence that he presents that expectations can influence individual health outcomes seems to me to be fairly strong. It may be worse that useless, however, for well-meaning people to use this knowledge to tell pessimists not to be so pessimistic. In my view if we want to help people we should give them plausible reasons for hope. My view on this are not be worth much, but Marty Seligman certainly doesn’t support happiness police urging people to fake positive emotion.

I can claim some professional knowledge about the effects of expectations on capital markets. Seligman’s comments on this topic were prompted by a claim by Barbara Ehrenreich that positive thinking destroyed the economy. According to her view, motivational gurus and executive coaches espousing positive thinking – using scientific props provided by academics like Martin Seligman – caused the recent global financial crisis and subsequent recession by infecting CEOs with viral optimism about economic prospects. Seligman responds that it is vacuous to suggest that the meltdown was caused by excessive optimism. Optimism causes markets to go up. Pessimism causes them to go down.

Ehrenreich is presumably suggesting that the bubble wouldn’t have burst if we didn’t have a bubble in the first place. Well, economists are still arguing about whether we did have an asset price bubble, and I don’t think many of those who think we had a bubble would lay the blame on positive psychology. In looking for the cause of the crisis we need to look for reasons why normally prudent financial institutions took on extraordinary risks. I don’t think it is necessary to look any further than the policies that central banks had pursued in the past that encouraged major financial institutions to believe that they were too big to be allowed to fail. The financial crisis occurred when the Fed decided to break with that policy and let one of the big gamblers go to the wall.

Seligman goes on to discuss asset pricing and the views of George Soros about reflexive reality. In my view he manages to make those views more comprehendible than Soros does. (My difficulty in understanding Soros was evident in this post.) According to Seligman, reality is reflexive if it ‘is influenced and sometimes even determined by expectations and perceptions’.

Economists have known for a long time that the market price of an asset is determined largely by expectations about future earnings from that asset and associated risks (reflected in discount rates). So, wealth can be considered to be a form of reflexive reality because it depends on expectations. As well as expectations about future earnings, the expectations that influence market prices at any time may include expectations that investors form about the optimism or pessimism of other investors – i.e. whether they are too optimistic or too pessimistic and how long they are likely to remain in that state.

From the perspective of the individual investor, however, the expectations of other investors are part of external reality that can be speculated about on the basis of their market behaviour, even though it isn’t knowable with any certainty. Her views about the expectations of other investors may influence her decisions to buy and sell, but her actions will have a negligible effect on market outcomes (unless she is a major player in the markets). Thus, even though asset values are determined by the combined expectations of investors, it doesn’t make sense for an individual investor to view her own expectations as influencing reality.

It seems to me that in personal investment, as in other aspects of life, it is good to have a realistic basis for optimism about the strategy one adopts. For example, consider the following advice that Warren Buffett offered retail investors. His basic message is optimistic: ‘Stocks are the things to own over time. Productivity will increase and stocks will increase with it’. Then he provides some realistic advice about how to avoid buying and selling at the wrong time and how to avoid paying high fees. This leads to even more realism: ‘Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market’. He ends up combining realism with optimism: ‘If a cross-section of American industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors’. (Comments by Warren Buffett in Spring 2008, quoted in Alice Schroeder, ‘The Snowball’, 2008, p 825.)

It is good to be optimistic, but even better to have a realistic basis for optimism.

………

My preceding post was also about Martin Seligman’s book, ‘Flourish’.

Is PERMA the be all and end all of human flourishing?

I have a high opinion of Martin Seligman. He has dedicated much of his working life to developing a scientific understanding of the factors that enable individuals to thrive. His focus is on developing effective interventions that people can apply to themselves. He is not afraid of writing for the popular market and becoming known as an author of self-help books, but I think history will remember him for his contributions to scientific research.

Seligman’s latest book, ‘Flourish’ combines a practical focus on helping people to live better lives with the story of his contribution to the development of positive psychology, his views on what it means to flourish and a most informative discussion of relevant research findings. The best review of the book I have found so far is by Christine Duvivier.

The purpose of this post is to focus on what I see as a shortcoming in ‘Flourish’, namely the central idea that well-being theory has only five elements: positive emotion, engagement, relationships, meaning and accomplishment – i.e. PERMA. Why these five elements and none other?

Seligman arrives at PERMA by asking one of the questions that Aristotle asked, without apparently recognizing that Aristotle also asked this question. Seligman actually seeks to distance himself from Aristotle because he no longer likes the idea that happiness is the be all and end all of everything.

The question that Seligman seems to have borrowed from Aristotle is: What is the good that we choose for its own sake rather than because it makes a contribution to something else that we value? Aristotle’s answer was happiness. Aristotle also asked another question: What is the good that when isolated makes life desirable and lacking in nothing? I think he meant: What is it that makes life meaningful? Again, Aristotle’s answer is happiness. But, what Aristotle meant by happiness was more than just positive feelings, emotional well-being or life satisfaction. According to Aristotle, happiness is flourishing. Flourishing is the good that we choose for its own sake.

It seems to me that Seligman is saying the same thing when he says that the elements that comprise well-being (PERMA) are the goods that we choose for their own sake. Seligman’s formulation cuts out happiness as an intermediate step, but what Aristotle meant by happiness (which in any case is probably a poor translation of the word he used) doesn’t have much to do with the smiley face stuff that Seligman is seeking to distance himself from. Seligman’s main problem with the ‘h’ word is that it appears to be inextricably bound up with being in a cheerful mood - critics of his use of the concept ‘authentic happiness’ claimed that he was attempting to redefine happiness by dragging the desiderata of engagement and meaning into the concept. He also has a problem with life satisfaction because mood determines more than 70 percent of how much life satisfaction an individual reports. (I don’t see this as a devastating criticism, however, because most of the time it would be fairly safe to assume that mood variations wash out in calculating averages over large numbers of respondents.)

Seligman makes the strong point that well-being is more than just feeling good: it is a combination of feeling good as well as actually having meaning, good relations and accomplishment in your life. He also makes the point that public policy aimed only at subjective well-being is vulnerable to the ‘Brave New World’ caricature in which governments promote happiness by encouraging people to use ‘soma’ (p 26). In my view, even though there is no immediate risk that governments will go that far, there is a real danger in some parts of the world that they could order people to take more leisure on the grounds that they think that will make them happier.

Aristotle’s identification of flourishing as the good we choose for its own sake, takes us to the question of how we can flourish. His answer was that it is ‘only when we develop our truly human capacities sufficiently that we have lives blessed with happiness’. Now, this obviously poses the further question of what it means to develop our truly human capacities. What it means for a human to flourish has a lot of things in common with what it means for a sheep or some other animal to flourish, but it also has distinguishing characteristics. I think we should also be open to the possibility that what it means for one individual to flourish will differ from what it means for another individual to flourish. Indeed, Martin Seligman recognizes this in his emphasis on the differences in signature strengths that people display.

At this point it might be helpful to go back to look at the question that Seligman has borrowed from Aristotle to see precisely how he framed it to obtain the answer he obtains. Seligman suggests that well-being theory ‘is essentially a theory of uncoerced choice, and its five elements comprise what free people will choose for their own sake’. I applaud the idea that well-being is about what free people choose. It seems to me that idea has the desirable quality of recognizing truly human capacities for individual self-direction. We couldn’t say that the well-being of a sheep is about what an individual sheep would freely choose because it will instinctively stay with the mob. Humans are also social animals but, as Seligman recognizes, individual human flourishing sometimes involves opposing the mob. (At one point in this book Seligman tells the story of a true hero, Chief Warrant Officer Hugh Thompson, who threatened to open fire on Lieutenant William Calley and his men if they didn’t stop their massacre of civilians at My Lai in 1968.)

I agree with Seligman that the five elements he has identified are elements that individual humans choose for their own sake. One of these elements ‘meaning’ is actually something that sheep would not aspire to have. My problem is that an important element is missing.

The important missing element that is integral to our individual flourishing and sought for its own sake is control over our own lives. I find it interesting that Dan Gilbert, another famous psychologist, has argued that our passion for control of our own lives is sought as an end in itself rather than for the quality of the future it buys us. Gilbert suggests that ‘human beings come into the world with a passion for control, they go out of the world in the same way, and research suggests that if they lose their ability to control things at any point they become unhappy, helpless, hopeless and depressed’ (‘Stumbling on Happiness’, p 22). I leave it for readers to guess the name of the psychologist, with initials M.E.P.S, whose research Gilbert refers to in support of that research finding.

However, we do don't need a psychologist to tell us that our desire to have control over our own lives is integral to our flourishing as adult human beings. It must be obvious to everyone that an adult human is the kind of creature that cannot be said to be fully flourishing if important personal decisions are taken out of her control so she does not bear responsibility for them. Moreover, there is evidence – discussed in my last post – that the feelings we have of control over our own lives is not just a personality trait or a feeling of mastery of some elements of our lives, but it reflect our level of satisfaction with the amount of freedom we have in our lives. The countries in which a high proportion of people feel a great deal of control over their lives also tend to have a high proportion of people who are satisfied with the amount of freedom in their lives.

That is the end of my outburst. I hope it doesn’t put anyone off reading ‘Flourish’. In some respects this seems to me to be a better book than ‘Authentic Happiness’ which was itself a very good book. I look forward to reading Martin Seligman’s next book, which I think has the potential to be even better than this one.

....
Postscript:
My next post: 'Why can't we have a realistic basis for optimism?' is also about 'Flourish'.

How close is the link between feeling free and being satisfied with freedom?

In my last post I discussed the close association between the feeling of having a great deal of freedom of choice and control over the way one’s life turns out and satisfaction with life as a whole. Data from World Values Surveys (WVS) suggests that when people feel they have a great deal of freedom and control they tend to be satisfied with life. I ended up referring to an earlier post providing evidence that perceptions of freedom are correlated with more objective indicators of freedom.


In this post I propose to revisit the links between different indicators of freedom, with a focus particularly on the relationship between feeling free and being satisfied with freedom. The underlying question is whether feelings of freedom of choice and control are influenced by emotional and cultural factors that may not have such a strong influence when people are asked whether they are satisfied with their freedom to choose what they do with their lives. The latter question is asked in the Gallup World Poll (GWP).

Figure 1 compares the percentages of those who feel a great deal of freedom of choice and control and those who are satisfied with the amount of freedom in their lives in 83 countries. The Figure shows a fairly strong positive relationship between the two variables. (The relationship shown would presumably be stronger if the variables being compared had been measured at the same time. I have used the 2005 WVS where possible and supplemented that using data from the 2000 survey. The data from the GWP was the most recent available in 2009, supplemented by more recent data for some countries.)

The observations for Latin American countries in Figure 1 are shown in red. Happiness researchers have previously observed that people in Latin America tend to be more satisfied with life than people with comparable incomes, health etc. in other countries. The location of these observations suggests that this Latin American factor (the secret of happiness?) comes into play to a greater extent when people are asked how much freedom of choice and control they have over the way their lives turn out than when they are asked whether they are satisfied with the amount of freedom in their lives. Perhaps the first question prompts people to look inward at their own feelings while the second question prompts them to look outward and think about national institutions.

Figure 2 show a quartile analysis for four different kinds of freedom for the 83 countries, ranked by percentage satisfied with the amount of freedom. Two additional variables, apart from percentage who feel they have a great deal of freedom and control. The first is an index constructed from the World Bank’s ‘Voice and Accountability’ indicator which captures perceptions of the extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media. (The index has been constructed such that an index value of 100 corresponds to an indicator value of +2 and an index value of zero corresponds to an indicator value of -2). The other index is the Heritage Foundation’s economic freedom index, which measures the extent to which individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state.

Figure 2 indicates that countries that have high scores in terms of proportion of the population who are satisfied with freedom also tend to have high scores in terms of the other measures of freedom. It is not clear, however, to what extent there is a direct causal relationship between these variables. It is possible, for example, that people could feel a great deal of control over their lives in countries where levels of economic freedom are relatively high because income levels are also relatively high in those countries. High incomes may enable people to feel greater control over their lives.

How close is the link between freedom and life satisfaction?

I think individual autonomy should be viewed not just as a factor contributing to human flourishing but as a factor that is integral to it in the same way that good relations with other people and a feeling of competence are also integral to human flourishing. It seems to me that the nature of humans is such that they cannot achieve their individual potential for psychological growth and enjoyment of life unless they have control of their own lives.


That judgement is not beyond dispute. For example, Richard Kraut has suggested that individuals may sometimes benefit from being coerced to prevent them from harming themselves. I considered that argument here.

In this post I want to consider another possible argument against autonomy, namely that some people may prefer to have their autonomy restricted because they have difficulty in coping with a great deal of freedom of choice and control over their lives. There is some experimental evidence that beyond some point an increase in the range of options may make it more difficult for consumers to make choices – they may even prefer not to make a choice if the choice set is too large. Does this mean that people have less satisfaction with their lives when they feel they have a great deal of choice and control over the way their lives turn out?

No! At least that is the answer suggested by the research of Paolo Verme, using a large data set drawn from the World and European Values Surveys (‘Happiness, Freedom and Control’, 2007). Survey respondents were asked to rate on a scale from 1 to 10 ‘how much freedom of choice and control you feel you have over the way your life turns out they had over the way your life turns out’ where 1 means ‘none at all’ and 10 means ‘a great deal’. When this ‘freedom and control’ variable was included in a statistical analysis to explain life satisfaction it was shown to be more important than other significant variables, including subjective health and income.

I have done some research of my own using data from the 2005 World Values Survey to explore the relationship between ‘freedom and control’ and happiness and life satisfaction. The charts shown below have been constructed using data from about 80,000 respondents in 57 countries. In each chart the sum of the columns in the depth axis (happiness or life satisfaction) is 100%. So, for example, looking at Figure 1, you will see that the percentage of people who are ‘quite happy’ is higher than those who are ‘very happy’, ‘not very happy’ and ‘not at all happy’ irrespective of perceptions about freedom and control. The chart suggests, however, that people are much more likely to say that they are very happy when they perceive that they have a great deal of freedom of choice and control.

A comparison of Figure 1 and Figure 2 suggests that there is a much stronger relationship between ‘freedom and control’ and life satisfaction than between ‘freedom and control’ and happiness. This makes sense to me. A well-treated slave might say that she is quite happy, even though she has little freedom, but she would be much less likely to say that she is satisfied with her life.

In case anyone is wondering, as discussed here, there is evidence that perceptions of freedom or choice and control from the World Values Survey are correlated with more objective indicators of freedom.

Can behavioural economics help markets to work better?

In his book, ‘The Upside of Irrationality’, Dan Ariely claims to have identified a market failure in the online introductions market. He refers to a survey indicating that people participating in that market spent on average 5.2 hours per week searching profiles and 6.7 hours per week emailing potential partners for a payoff of 1.8 hours actually meeting them.

He comments:

‘Talk about market failures. A ratio of 6:1 speaks for itself. Imagine driving six hours in order to spend one hour at the beach with a friend (or even worse, with someone you don’t know and are not sure you will like)’.

When I read that my first thought was that it would not be particularly uncommon in Australia for young people to drive three hours to spend an hour with a friend and then drive for another three hours back to where they came from.

I think the term market failure is thrown around too loosely. The situation described clearly involves high transactions costs, but that doesn’t mean the market has failed. The existence of high transactions costs in a market should not be viewed as a symptom of market failure unless we can point to some reason why the market cannot function efficiently.

In this instance the market seems to be working well because evidence relating to the existence of high transactions costs has induced some enterprising people to consider what innovations might be introduced to reduce those transactions costs. The fact that the innovators were a university professor and his associates suggests to me that university staff may be becoming more entrepreneurial.

I think Dan Ariely has done a good job of demonstrating the potential for behavioural economics to help entrepreneurs to design innovations that may reduce transactions costs. He considers survey and experimental evidence which suggests that the high transactions costs associated with online introductions stem from the attempt to reduce humans to a set of searchable attributes. The problem is that the searchable attributes convey little information about what it might be like to spend some time with particular individuals.

Ariely and his associates developed a virtual online dating site that enabled participants to engage anonymously in instant message conversation about various images e.g. movie clips and abstract art. They found that participants were about twice as likely to be interested in a real date after meeting in person following the virtual date than following a conventional online introduction. It seems that when we experience something with another person we gain much more information about compatibility than when we just look at searchable attributes. He has discussed his research here.

It is too soon to know whether Dan Ariely and his associates have prompted a market innovation that will help large numbers of people to live happier lives. However, I think Ariely has demonstrated that behavioural economics may be able to help markets work better. As he points out, there is potential for firms to do a better job of satisfying consumer demand by conveying to consumers what it might actually be like to have the experience of using their products. I think that means, among other things, that if retail stores didn’t exist already they would probably need to be invented to give consumers the opportunity to experience goods before they buy them.

Coming back to market failure, does the fact that some consumers buy goods cheaply online after inspecting them in a retail outlet constitute a market failure? I don’t think so, even though such behaviour is evidence of positive spillovers associated with retailing. Manufacturers will work out before long that retailers provide them with a useful service by enabling consumers to experience their products in real life - and think up some way to encourage ongoing provision of that service.

Why do some people become grumpy senior citizens?

When I was in my 20s I could not imagine what it might be like to be old. I would not have believed it possible that one day the government would issue me with a ‘Seniors Card’ declaring that I am ‘a valued member of our community’ and asking for ‘every courtesy’ to be extended to me.

Actually, I still find it hard to believe that I have been given this card. Wasn’t I a valued member of the community when I was younger? Aren’t young people and old people equally entitled to courtesy?

Perhaps the purpose of the card is to warn young people that old people can be grumpy. A few days ago an elderly person - a person considerably older than me who has to cope with considerable pain and limited mobility - told me that a young man in a health services profession recently made a remark to her along the lines: ‘So, we are feeling a bit grumpy today, are we?’ She apparently tore strips off him (metaphorically) to teach him a lesson in courtesy. He now knows how she behaves when she is feeling particularly grumpy!

A few days ago another person mentioned to me that she had observed that the minor irritating behaviours that some of her friends had displayed when they were young have tended to worsen as they grow older. I think I have observed something similar, but I wonder whether the behaviour actually worsens or whether my threshold for irritation might have fallen as I have aged. There may be tendencies for both of these things to occur in some people. Some other people seem to improve with age.

In his book, ‘The Upside of Irrationality’, Dan Ariely provides a discussion of the long-term effects of short-term emotions, which may be helpful to an understanding of how some people develop habits of grumpiness. He provides experimental evidence that the way we respond to particular events when we are angry (even for unrelated reasons) can have an ongoing influence on our future decisions in similar circumstances and even become part of our identity.

The experiment involved influencing the mood of participants by showing them different videos chosen to make them feel either angry or happy, observing how they then respond to unfair treatment (unfair offers in the ultimatum game) and then observing how fairly they treat other people when roles are reversed. As might be expected, the angry participants were more likely to reject unfair offers. However, the offers that those participants subsequently made to other people tended to be fairer than the offers made by the happy participants who had accepted the unfair offers.

Ariely’s interpretation of the results seems to me to make sense. He suggests that the angry people tended to attribute their decision to reject the offer to its unfairness rather than to their emotional state and then to act as though they think other people are just like themselves. Similarly, the happy people who accepted the unfair offer would have tended to think that other people would be similarly willing to accept unfair offers. In both cases the decision made has an ongoing influence over future decisions, after the initial emotional state has passed.

The results are consistent with the idea that individuals have a tendency to interpret their own past decisions to indicate the kind of person they are and how the world works. A grumpy person who reacts negatively when some other person is perceived to be disregarding his or her commands is not necessarily acting out of character when showing generosity towards that person at other times. A decision made at the heat of the moment at some time in the distant past could have initiated a pattern of behaviour and sense of identity that prompts the person to act in this way. (The grumpiness shown at a particular time could, of course, be aggravated by pain or frustration.)

It is sometimes argued that society benefits from the actions of people who are prepared to sacrifice their own well-being in order to punish people who act unfairly. However, people who engage in such vindictive behaviour do not necessarily spend much time feeling grumpy. Chronic grumpiness is obviously undesirable for the individuals directly affected as well as for the victims of their grumpiness.

Dan Ariely’s research findings suggest an additional remedy for those of us who are concerned that we might become grumpier as we grow older. We should avoid making decisions while we feel grumpy!

What is wrong with the way governments are pursuing happiness objectives?

There can be no doubt that western democratic governments have been attempting to promote the happiness of citizens for a long time. They may not talk much about attempting to achieve the greatest happiness for the greatest number, or any similar high-sounding principle, but they have a wide range of policies intended to promote the well-being of citizens in general or of various groups. When it comes to discussion of government policy most citizens could be broadly described as utilitarians. We may feel strongly about rights, but we have come to expect policy debates to focus on the effects of proposed policy changes on particular groups of gainers and losers and on the wider community.

As I see it there is nothing inherently wrong with governments seeking to enable us to live happier lives, particularly since this is what many citizens want. It is certainly better to have people in government trying to enable us to live happier lives than for them to be trying to make themselves happier at our expense. The main problem as I see it is that the approaches that we – the people in western democracies – have been encouraging governments to adopt to help us to live happier lives have often been counter-productive.

The first problem has to do with our perceptions of the nature of happiness. I think we have been too ready to assume that the best way to enable people to live happier lives is to attempt to control their lives for them. Thus, for example, people are taxed during their working lives to provide health care or retirement incomes that they could afford to provide for themselves. Added to this we have proposals to prevent people from saving too little, working too hard, gambling too much, eating too much and so forth. We need to consider whether the humans are able to flourish if they do not have control of their own lives.

The second problem has to do with the idea that governments could promote the happiness of society if only it could be measured correctly. There has been an ongoing debate about the shortcomings of GDP as a well-being measure and various alternatives are being proposed, including some involving direct measurement of happiness. We need to consider whether it makes sense to discuss the relative merits of different indicators as though all the different factors that are important to the flourishing of any group of individuals can be captured by a single statistic.

The third problem has to do with the effects of government pursuit of happiness on individual flourishing. The more governments take over responsibility for our happiness, the more restrictions they impose on the opportunities that are available to us. For example, if governments regulate to reduce working hours in order to enable people to enjoy more leisure, this restricts the opportunities available to people who have strong personal reasons for working longer hours. We need to consider more carefully the likely effects of such government interventions.

The fourth problem has to do with the effects of government pursuit of happiness objectives on the social fabric. The opportunities available to individuals depend to a large extent on the kind of society they live in. If they live in a corrupt society in which rule of law is breaking down, their opportunities for mutually beneficial interactions with other citizens are likely to be diminished. Incentives for corruption are obviously stronger when governments intervene extensively to regulate the behaviour of citizens. We need to consider how successful different societies have been in containing corruption in the face of such incentives.

These issues are to be discussed in a book I am currently writing, with the provisional title:

We need to be

Free to Flourish

The introductory chapter of the book is available here. Comments would be appreciated. (Please do not be offended if I do not respond immediately because it may take a few days to re-surface, or come down to earth from other activities.)

Is Bhutan's GNH experiment a success or failure?

This charming little video provides some history of the concept of Gross National Happiness and its application in Bhutan.


It is amazing how much passion has been aroused by Gross National Happiness outside Bhutan. In August last year Jeffrey Sachs, a distinguished development economist, suggested that western countries should follow Bhutan in adopting Gross National Happiness as a national objective. His concern is that trends toward ‘hyper-consumerism’ have accelerated in the United States in recent decades and that this is destabilizing social relations and leading to aggressiveness, loneliness, greed, and over-work to the point of exhaustion. It is not self-evident that Sachs’ claims are true – and he provides no evidence in support of them. More importantly, it is not clear how he thinks adopting Gross National Happiness as a national objective in western countries would lead to better outcomes. I fear that the remedy he has in mind for alleged hyper-consumerism is additional paternalistic interventions by governments to further remove from individuals the responsibility to control their own lives.

On the other side of the canvas, Julie Novak, a free market liberal whose views I normally respect, has described Bhutan’s adoption of the GNH objective as a failed experiment. Julie’s reasoning seems to be that the experiment must have failed because Bhutan has a relatively low per capita GDP level and its ratings on various social indicators are also relatively low. However, I doubt whether many people would claim that adopting GNH as an objective can immediately lift the average well-being of people in a low-income country like Bhutan to a level comparable to that attainable in the most affluent countries. That would be just as silly as claiming that an increase in economic freedom can convert a low-income country immediately into a high-income country.

It makes more sense to compare Bhutan’s performance on various economic and social indicators with that of other low-income countries. The comparison I made between Bhutan and India, here, suggests that Bhutan has performed reasonably well. For example, Bhutan’s average economic growth rate of around 8 per cent per annum over the decade to 2007 was substantially higher than that for India.

It seems to me that it is far too soon to come to a judgement about Bhutan’s GNH experiment, particularly since it is only in recent years that a serious attempt has been made to measure GNH and there is little evidence to suggest how this information will actually be used in policy development. I concluded my research on this topic for APEL by suggesting that it is not yet clear to what extent the judgments implicit in the methodology reflect the values of the people of Bhutan on such matters as the dimensions of well-being that are important and the weighting that should be given to each dimension. One of my concerns is that the weight that people living in urban centres may wish to give to resilience of cultural traditions may differ substantially from that of people living a traditional rural lifestyle. It would not make sense to claim, for example, that the happiness of any individuals can be enhanced by forcing them to adopt traditional lifestyles if they would prefer more cosmopolitan lifestyles (or vice versa).

Postscript: May 8, 2011

In discussing GNH I have avoided discussing the Nepalese refugee problem because I don't know much about it. It is clear, however, that the government of Bhutan has been slow to repatriate refugees who were long-term residents of Bhutan prior to being forced to leave.

It is also of concern that in implementing its GNH policy the government of Bhutan is now apparently jailing people for having more that a very small amount of tobacco products in their possession. This is discussed by Sonam Ongmo on her Dragon Tales blog.

The idea that you can make people happy by jailing them seems peculiar.