toward national wellbeing accounts

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American Economic Association

Toward National Well-Being AccountsAuthor(s): Daniel Kahneman, Alan B. Krueger, David Schkade, Norbert Schwarz, Arthur StoneSource: The American Economic Review, Vol. 94, No. 2, Papers and Proceedings of the OneHundred Sixteenth Annual Meeting of the American Economic Association San Diego, CA,January 3-5, 2004 (May, 2004), pp. 429-434Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/3592923

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TowardNationalWell-BeingAccountsBy DANIEL KAHNEMAN, ALAN B. KRUEGER, DAVID SCHKADE, NORBERT SCHWARZ,

AND ARTHUR STONE*

Economists have traditionallyeschewed di-rect measuresof well-being on methodologicalgrounds:he privatenatureof experienceand thediscomfortof making nterpersonalomparisons.Instead, ncome is oftenused as a proxyfor op-portunities ndwell-being.If peopleare not fullyrational,however,theirchoices will notnecessar-ily maximize their experiencedutility, and in-creasingtheir opportunitieswill not necessarilymake thembetteroff (Kahneman,1994;Cass R.SunsteinandRichardThaler,2004). Direct mea-sures of experiencedutilitybecome particularlyrelevant n a context of boundedrationality.Furthermore,advances in psychology andneuroscience suggest that experienced utilityand well-being can be measuredwith some ac-curacy (Kahnemanet al., 1999). Robust andinterpersonally consistent relationships havebeen observedbetween subjectivemeasures ofexperienceand both specific measures of brainfunction and health outcomes. In partbecauseof these findings,economic researchusing sub-jective indicatorsof happinessand life satisfac-tion has proliferated n recentyears (see BrunoFrey and Alois Stutzer [2002] for a survey).Most work on well-being uses a question onoverall life satisfaction or happiness.We sug-gest an alternativeroutebased on time budgetsand affective ratingsof experiences.

I. Plausible and Puzzling Findingsof Well-Being ResearchNumerous studies have establishedthat lifesatisfaction is weakly correlated with incomeand withreligiosity,butuncorrelatedwitheither

* Kahnemanand Krueger:Woodrow Wilson School ofPublic and InternationalAffairs, Princeton University,Princeton,NJ08544; Schkade:Department f Management,McCombsSchool of Business,Universityof Texas, Austin,TX 78712; Schwarz: Institute or Social Research,Univer-sity of Michigan,Ann Arbor,MI48106; Stone:Departmentof Psychiatryand BehavioralScience, School of Medicine,StonyBrookUniversity,StonyBrook,NY 11794.KruegersalsoaffiliatedwiththeNationalBureau f EconomicResearch.

educationor climate.Minnesota, orexample,isamong the happiest states. The function thatrelates satisfactionto age is U-shaped: reportedhappiness rises with age from age 45 to 70,controlling for health. Life satisfaction is lowamong the unemployedand is affected by lifeevents such as marriage,divorce, and bereave-ment.Peoplewho describethemselves as happyor as satisfiedwith theirhealth are likely to beextraverted, sociable, and optimistic. Theyshow a characteristicpatternof electrocorticalactivity, with greateractivity in the left than intheright prefrontal ortex(RichardJ. Davidson,2003; H. L. Urry et al., 2004). They have astronger response to an influenza vaccine andrecover more quickly from controlled wounds(J. K. Kiecolt-Glaseret al., 2002; S. Cohen etal., 2003).The list of plausible results is long, but re-search using the standard measures of well-being has also produced two major puzzles(Ronald Inglehart and Jacques-Rene Rabier,1986): (i) surprisinglysmall effects of circum-stances on well-being (e.g., income, maritalsta-tus, etc.); (ii) surprisingly arge differences inthe level of life satisfaction n variouscountries.The most remarkablefinding in the well-being literature s the extent to which peopleadapt to circumstances,even extreme circum-stances.P. Brickmanet al. (1978) reported hatafter a period of adjustmentlottery winnerswere not much happierthan a control group,andparaplegicswere not muchunhappier.Datafrom the GermanSocio-Economic Panel indi-cate that the effects on life satisfaction of bothmarriage and widowhood largely dissipatewithin three years of the event (Richard E.Lucaset al., 2003). R. A. Easterlin(1995) findsthataverageself-reportedhappinessdid not in-crease in Japanfrom 1958 to 1987, althoughreal income increasedfivefold.

Findingsof adaptationarerobust,butopentomultiple interpretations.Brickman and D. T.Campbell(1971) proposeda hedonic treadmillhypothesis:people adaptto situationsthat areinitially pleasant or unpleasant,much as they

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adapt to a warm bath. The pleasure or painevoked by a new situationdeclines in intensityand is eventually replaced by neutralfeelings.Kahneman et al. (1999) observed that mean-reversion s also compatiblewith thehypothesisof an aspiration treadmill: pleasure or painmight persist,but the evaluation of these expe-riences is relativeto expectations,andexpecta-tions eventually adjust. On this hypothesis,global reportsof subjectivewell-being exagger-ate the amountof hedonic adaptation hat actu-ally occurs. The ambiguitycan only be resolvedby measuring he hedonicqualityof experienceseparatelyfrom expectations.The secondpuzzle is theconsistentfindingoflarge differences in reportsof life satisfactionacross seemingly similar countries.For exam-ple, 64 percent of the Danes described them-selves as "very satisfied" with their lives in aEurobarometer urvey, but only 16 percent ofthe French did so. The difference between theFrench and the Danes is more than twice aslarge as the difference between the employedand unemployed in either country. Across 63countries ncluded in the World Values Survey,the standard deviation of country means ofoverallsatisfaction s 1.12,more than half of theaveragestandarddeviation of individualswithincountries (2.21). These differences appearim-plausibly large,andthey raiseadditionaldoubtsaboutthevalidityof globalreportsof subjectivewell-being, which may be susceptible to cul-turaldifferencesin the norms that govern self-descriptions (Alex Inkeles, 1993; Ed Diener,2000; Diener and Eunkook M. Suh, 2000).

II. SubjectiveversusObjectiveAggregationand Other Potential BiasesF. Y. Edgeworth(1881) imagineda "hedon-imeter,"whichcontinuouslyrecordsan individ-ual's utility (in JeremyBentham'ssense of theterm as momentarypositive or negative feel-ings). Happiness is defined by the integral ofutility over time. Kahnemanet al. (1997) pro-vide a formal analysis of the conditions underwhich global judgments of the total utility ofextended outcomes will satisfy temporalinte-gration. That paper also reviews experimentalresearchdemonstrating hat individuals'global

retrospectiveassessments of their experiencesconsistently violate the logic of temporalinte-gration. nparticular, lobal subjective udgments

of episodes generally overweight experiencesthat are either extreme or recent, and assignlittle or no weight to the durationof an experi-ence. People are apparentlyunable to producean accurate and unbiasedevaluationof experi-ences that extend over time.The life satisfactionand happinessquestionsthat are used in well-being researchrequestthetype of global assessment that people performpoorly on in the psychological laboratory.Ex-perimentalvariations of surveys have shownthat many irrelevant actors affect these evalu-ations. Thus, reportsof life satisfactionare in-fluencedby manipulationsof currentmood andof the immediate context, including earlierquestionson a survey that cause particulardo-mains of life to be temporarily salient (N.Schwarzand F. Strack,1999). Satisfactionwithlife and with particulardomains (e.g., income,work) is also affected by comparisons withotherpeopleand withpastexperiences(AndrewE. Clark,2003). The same experienceof plea-sure or displeasurecan be reporteddifferently,dependingon the standard o which it is com-paredand the context.In summary,global subjectiveevaluations ofone's life are unlikely to provide an accuraterepresentationof the concept of utility thatEdgeworth proposed. Discrepancies will arisebecause the durations of experiences are notadequatelyweightedin global assessments,andbecause these assessments are unduly influ-enced by the immediatecontext and by irrele-vant standards of comparison. To overcomethese biases we need measures of well-beingthat have the following characteristics: i) theyshould representactual hedonic and emotionalexperiences as directly as possible; (ii) theyshouldassignappropriateweight to the durationof differentsegmentsof life (e.g., work, leisure,etc.); (iii) they shouldbe minimallyinfluencedby context and by standardsof comparison.

III. ExperienceSamplingand the DailyReconstructionMethodThe Experience Sampling Method (ESM)collects informationon individuals'experiencesin real time in their natural environments

(Mihalyi Csikszentmihalyi, 1990; Stone andS. Shiffman, 1994). ESM is intended to over-come problems inherent in global satisfactionquestions,namely, imperfectrecall and duration

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AEAPAPERSAND PROCEEDINGSTABLE 2-MEAN NET AFFECT BY ACTIVITY

Percentage Time spent NetActivity of sample (hours) affectIntimaterelations 11 0.21 4.74Socializing afterwork 49 1.15 4.12Dinner 65 0.78 3.96Relaxing 77 2.16 3.91Lunch 57 0.52 3.91Exercising 16 0.22 3.82Praying 23 0.45 3.76Socializing at work 41 1.12 3.75WatchingTV 75 2.18 3.62Phone at home 43 0.93 3.49Napping 43 0.89 3.27Cooking 62 1.14 3.24Shopping 30 0.41 3.21Computerat home 23 0.46 3.14Housework 49 1.11 2.96Childcare 36 1.09 2.95Evening commute 62 0.62 2.78Working 100 6.88 2.65Morningcommute 61 0.43 2.03Notes: Net affect is the averageof threepositive adjectives(enjoyment,warm,happy)less the averageof five negativeadjectives(frustrated, epressed,angry,hassled,criticized).All the adjectivesarereportedon a 0-6 scale, ranging rom"notat all"to "verymuch."The "timespent"column is notconditionalon engagingin the activity.The sampleconsistsof 909 employed women in Texas.

al., 2003) and a studyof teachers n exemplaryandfailingschoolsusingDRM(Kahnemant al.,2003) both find evidence of adaptation,endingsupport or the hedonictreadmillnterpretation.IV. Time-Based National Well-Being Accounts

We return o Bentham and Edgeworth'sno-tion thatutility is the integralof the stream ofpleasuresandpainsassociated with events overtime. A simple formulations thatutilityis timeseparable.Write an individual's utility in dis-crete time as Ui = Ejhij,ij, where hij is theamountof time individual i is engaged in situ-ation j (e.g., washing the dishes with one'sspouse) and -ij is the net affective experienceduringsituation .A measure of national well-being (WB)therefore s(1) WB = Yiljhil,li/NwhereN is the populationsize. Notice that (1)can be written as: jHjHj+ ijhij(Ltij - Uj)IN,

whereHjis the averageof hijoverpeople anduis the average net affect experienced duringsituation . Inourdata,time spenton an activityis virtuallyuncorrelatedwith net affect acrosspeople (r = 0.01), so NWBA can be measuredby(2) WB' = ZHjuj.This equationhas the advantagethat time useand affect can be from separatesurveys.'To compute equation(1), net affect andtimeuse can be collected from DRM. For (2), ujcanbe collected fromERM (orDRM), andHjfroma separatesurvey, such as the Bureau of LaborStatistics' new monthly American Time UseSurvey.There are, of course, many assumptionsun-derlyingthis formulation.We must assume:thataffective experiences can be comparedacrosspeople; thatnet affect providesa cardinalmea-sure of utility;utilityis time separable;andthata simple measure of net affect representstheutility of an experience. In addition to theseconceptual hurdles, there are several practicalproblemsas well: the situations hat arerelevantfor well-being must be identified (what goesintoj); the allocationof time must be measured;data on net affect for a representative ampleindifferent situationsmust be collected; and theadjectives that go into defining affect must bespecified. The question is not whether(1) pro-vides a perfect measure of well-being, butwhether it adds useful information o the stan-dard global questions by which well-being iscommonly measured.Inourview, theconceptual ssumptions nder-lying(1)can bedefended, houghundoubtedly otto everyone'ssatisfaction.Psychologistsare morecomfortable han economistswhen it comes tocomparingndicatorsof feelings or utilityacrossindividuals.The facts thatself-reportedatisfac-tion is correlatedwith physiological measuresand health outcomes and that there is somecorrelation between objective circumstancesand affective ratingssuggest that there is some

1This idea is not new to us. Greg Dow and F. ThomasJuster(1985) use this framework o analyze time-use datacombined with what we call "domain-specific atisfaction"for 13 activities using the adjective"enjoy."

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signal in interpersonalcomparisonsof affect.2Additionally, n Kahneman t al. (2003) we findthatpositive andnegativeaffect arehighly cor-relatedacrosssituations(less so across individ-uals), suggesting that net affect provides anaccuratecharacterization f situations.V. Conclusion

The goal of public policy is not to maximizemeasuredGDP, so a better measure of well-being could help to inform policy. Here wepropose measuring national well-being byweighting the time allocated to various activi-ties by the subjective experiences associatedwith those activities. The main advantagesofourbottom-upapproachvis-a-vis top-downlifesatisfactionmeasures are: (i) it avoids some ofthe biases (e.g., durationneglect) of global ret-rospectiveevaluations;and(ii) it is connectedtothe allocationof time, which can be measured.If time is not allocatedoptimallyto begin with,then well-being accountscould provide a par-ticularlyuseful point of referencefor society.The NWBA can be used to summarizetheaverage affective well-being of a population.Three potential uses are the following: (i)Changes in well-being in a countryover timecan be tracked,and the growthcan be decom-posed into a componentdue to changes in theallocation of time across situations, a compo-nent due to changes in affect for a given set ofsituations, and a residual. (ii) For subpopula-tions (e.g., rich vs. poor) at a given time, dif-ferences in well-being can be attributed todifferences in time allocated across situations,differencesin affect derivedfrom a given set ofsituations, and a residual. (iii) Differences inwell-being between countries can likewise becomparedand decomposed.In addition, ime-basedmeasuresof well-beingcould also be related to individual outcomes,such as health and brain activity. Well-beingaccountscould help to understandhow subjec-tive experiencesrelateto health.Because of adaptationand the fact that indi-vidual fixed effects (possibly genetic factors)

2 One perhapstrivialbut reassuring ndicationwe haveof the signal in interpersonal omparisonsusing our DRMapproachs that ndividualswho reported leepingless weremore likely to report feeling tiredduringeach hour of theday.

account for much of the variance in self-reportedsatisfaction, one may ask whether aNWBA indexthatis not particularly esponsiveto changes in policy or living standards s ofmuch interest. Several responses are possible:(i) Although circumstances account for littlevariation n self-reportedife satisfactionacrosssubjects,the relevantconsideration s how cir-cumstancesrelateto the average level of well-being. (ii) The allocationof time changes overtime, and can be influenced by policy (e.g.,overtime laws); it would be useful to see howsuch changes map into well-being. (iii) GDPonly grows by 3 percent or so each year, sosmall changes are typical in measures of mate-rial well-being. A large sample would beneeded to detect such changes on an annualbasis, however.

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