Hey, Economics! Humans Are Social Beings
The science of happiness has much to teach traditional economists.
Posted Jun 30, 2020
Modern economics has lost its way, but research into happiness can help to steer it back on track.
Economics was founded by Western philosophers thinking about happiness. Those philosophers, including Adam Smith (1723-1790), Jeremy Bentham (1748-1832), and his student John Stuart Mill (1806-1873) all understood that humans were, above all, social beings. Strangely, Smith, who coined the term “invisible hand,” is often mischaracterized as an arch-champion of individual selfishness. In fact, he so objected to Hobbesian views of humanity that he chose the following sentence as the very first words of his 1759 book:
However selfish man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though they derive nothing from it except the pleasure of seeing it.
This book, entitled The Theory of Moral Sentiments, describes our interest in wealth as socially motivated. For understanding human behavior, it points to our capacity for sympathy, our quest for social approbation, our love of justice, and so on. He was in fact an early psychologist, an early behavioral economist, and an early happiness economist.
I am not actually a historian of philosophy nor of economics; I study the determinants of human life satisfaction. But it appears that over the decades of the 20th century, economics lost that initial understanding of our social nature.
By the mid-20th century, economics textbooks had entirely stopped mentioning what was obvious to early thinkers: that human wellbeing and human behavior may relate as much (or more) to our social standing as to our material consumption. And that we may be hardwired to care about justice, meaning, and belonging, rather than simply spending power.
As the joke goes, economists would never dream of putting a sense of social justice into their models of human wellbeing, yet at the same time would never question someone choosing to spend 20 bucks to go and watch Rambo blowing up bad guys for two hours.
The best evidence for why “social preferences” were abolished from our discipline suggests it was to keep the math in homework problems as simple as possible. When you assume people only care about how much they eat, what services they buy, how much they will be able to eat and buy in the future, and how much free time they have outside of work, the math is relatively easy. This allows us to solve pretty complicated models in which many people are participating in markets and other sorts of interactions. In fact, that ability has been one of the strengths of economics.
Unfortunately, as soon as you allow for people in a model to care about what someone else eats, or about the distribution of wealth, or any such thing, the math quickly becomes so complicated that no one can solve it algebraically. I can attest to this myself, having spent a year during my Ph.D. trying to solve a model of a simple situation involving people who compare themselves to others (Chapter 3 in my UBC dissertation).
If you've read other entries in my column, you know the happy ending to this story: In the 1970s, economists stumbled upon the idea (thank you, psychologists!) of asking people to evaluate their satisfaction with life, overall, taking all things into account. Over the decades, many millions of people from all around the world have answered this question, and these “cognitive evaluations of life” have been analyzed, along with other information about the circumstances of each respondent, to find out just what it is that makes life good or bad.
From this, we now know with great confidence that, once again: We are social beings. Health matters a lot to life satisfaction. So does income and consumption. But it seems that these make life better largely through social channels. What really matters to how good life feels is the extent to which we feel we belong, that we are needed, that we are part of something meaningful, that we have agency, that we can trust those around us, that we are able to help others. Rather than relying on assumptions in conventional economic models, or descriptions like Maslow's hierarchy, the science of happiness allows us to quantify the importance of each of these things, and anything else measurable, in supporting a happy and fulfilling life.
The old philosophers did not have everything right, but in some ways, economics is only now making it back to a realistic portrayal of human nature. This new, old world view of the joys of life — this time accountable to evidence — and combined with our modern potential, can lead us in a wonderful direction.
Adam Smith. The Theory of Moral Sentiments. A. Millar, A. Kincaid & J. Bell. AM Kelley., 1759
Barrington-Leigh, Christopher, "A model of neighbourhoods and endogenous reference group choice", PhD dissertation chapter 3, University of British Columbia, 2009.