Surveys Vs. Revealed Preference
Richard Layard uses survey research and some fancy philosophical footwork to argue against conventional wisdom in economics and in favor of a nanny state. Some quotes from the series of three lectures:
People in the West have got no happier in the last 50 years. They have become much richer, they work much less, they have longer holidays, they travel more, they live longer, and they are healthier. But they are no happier. This shocking fact should be the starting point for much of our social science.
…First, I compare what I have with what I have become used to (through a process of habituation). As I ratchet up my standards, this reduces the enjoyment I get from any given standard of living. Second, I compare what I have with what other people have (through a process of rivalry). If others get better off, I need more in order to feel as good as before. So, we have two mechanisms which help to explain why all our efforts to become richer are so largely self-defeating in terms of the overall happiness of society.
…Let me give you two examples where in both cases people became objectively better off but felt subjectively worse. One is the case of East Germany where the living standards of those in work have soared since 1990, but their level of happiness has plummeted because they now compare themselves with the West Germans, rather than with other countries in the Soviet bloc. Another case is women, whose pay and opportunities have improved considerably relative to men, but their level of happiness has not. Indeed in the US women’s happiness has fallen relative to men’s, perhaps because they compare themselves more specifically with men than they used to, and are therefore more aware of the gaps that still exist.
…Rivalry and habituation lead to a quite different conclusion. They tell us that in an efficient economy, there will be substantial levels of corrective taxation.
Layard treats people’s responses to survey questions such as “would you rather earn $50,000 in a world where others earn half that or earn $100,000 in a world where others earn double that?” as measuring objective reality, while taking people’s actual choices as socially constructed, due to artificial influences, such as advertising.
I have a hard time letting go of my biases as an economist. If people really wanted to live among others who earn half of their incomes, Americans would be flocking to Mexico rather than the other way around.
For Discussion. Layard reports survey-based research that shows that women devote less than 15 minutes a day to sex and yet report that sex is what makes them happiest. Which of those two facts is more likely to be “socially constructed” by the way that sex is treated in the media?