Revolutionary developments in economics are rare. The conservative bias of the field and its enshrined knowledge make it difficult to introduce new ideas not in line with received theory. Happiness research, however, has the potential to change economics substantially in the future. Its findings, which are gradually being taken into account in standard economics, can be considered revolutionary in three respects: the measurement of experienced utility using psychologists' tools for measuring subjective well-being; new insights into how human beings value goods (...) and services and social conditions that include consideration of such non-material values as autonomy and social relations; and policy consequences of these new insights that suggest different ways for government to affect individual well-being. In Happiness, emphasizing empirical evidence rather than theoretical conjectures, Bruno Frey substantiates these three revolutionary claims for happiness research. After tracing the major developments of happiness research in economics and demonstrating that we have gained important new insights into how income, unemployment, inflation, and income demonstration affect well-being, Frey examines such wide-ranging topics as democracy and federalism, self-employment and volunteer work, marriage, terrorism, and watching television from the new perspective of happiness research. Turning to policy implications, Frey describes how government can provide the conditions for people to achieve well-being, arguing that a crucial role is played by adequate political institutions and decentralized decision making. Happiness demonstrates the achievements of the economic happiness revolution and points the way to future research.Bruno S. Frey is Professor of Economics at the University of Zurich, Visiting Professor at the Swiss Federal Institute of Technology, and Research Director of CREMA. He is co-editor of Economics and Psychology: A Promising New Cross-Disciplinary Field. (shrink)

Revolutionary developments in economics are rare. The conservative bias of the field and its enshrined knowledge make it difficult to introduce new ideas not in line with received theory. Happiness research, however, has the potential to change economics substantially in the future. Its findings, which are gradually being taken into account in standard economics, can be considered revolutionary in three respects: the measurement of experienced utility using psychologists' tools for measuring subjective well-being; new insights into how human beings value goods (...) and services and social conditions that include consideration of such non-material values as autonomy and social relations; and policy consequences of these new insights that suggest different ways for government to affect individual well-being. In Happiness, emphasizing empirical evidence rather than theoretical conjectures, Bruno Frey substantiates these three revolutionary claims for happiness research. After tracing the major developments of happiness research in economics and demonstrating that we have gained important new insights into how income, unemployment, inflation, and income demonstration affect well-being, Frey examines such wide-ranging topics as democracy and federalism, self-employment and volunteer work, marriage, terrorism, and watching television from the new perspective of happiness research. Turning to policy implications, Frey describes how government can provide the conditions for people to achieve well-being, arguing that a crucial role is played by adequate political institutions and decentralized decision making. Happiness demonstrates the achievements of the economic happiness revolution and points the way to future research.Bruno S. Frey is Professor of Economics at the University of Zurich, Visiting Professor at the Swiss Federal Institute of Technology, and Research Director of CREMA. He is co-editor of Economics and Psychology: A Promising New Cross-Disciplinary Field. (shrink)

First, the approaches of 'Diskursethik' (Discourse ethics) and of Modern Political Economy are described. While the latter investigates political decision processes, the former is concerned with the discourse process which takes place before a decision is made. This is shown by using referenda as an example. The discourse which takes place before referenda obviously does not conform to the ideal conditions defined in Diskursethik, but discourse and decisions in the context of referenda come nearer to the intentions of Diskursethik and (...) Political Economy than other decision procedures which are used in representative democracies. (shrink)

Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, and adds costs to principal-agent relationships. The engraving effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are (...) supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond. (shrink)

Economics and psychology are both sciences of human behaviour. This paper gives a survey of their interaction. First, the changing relationship between the two sciences is discussed: while economics was once imperialistic, it has become a science inspired by psychological insights. In order to illustrate this, recent developments and evidence for three major areas are presented: bounded rationality, non-selfish behaviour, and the economics of happiness.

The integration of economics and psychology has created a vibrant and fruitful emerging field of study. The essays in Economics and Psychology take a broad view of the interface between these two disciplines, going beyond the usual focus on "behavioral economics." As documented in this volume, the influence of psychology on economics has been responsible for a view of human behavior that calls into question the assumption of complete rationality, the acceptance of experiments as a valid method of economic research, (...) and the idea that utility or well-being can be measured.The contributors, all leading researchers in the field, offer state-of-the-art discussions of such topics as pro-social behavior and the role of conditional cooperation and trust, happiness research as an empirical tool, the potential of neuroeconomics as a way to deepen understanding of individual decision making, and procedural utility as a concept that captures the well-being people derive directly from the processes and conditions leading to outcomes. Taken together, the essays in Economics and Psychology offer an assessment of where this new interdisciplinary field stands and what directions are most promising for future research, providing a useful guide for economists, psychologists, and social scientists. (shrink)

Human beings under some conditions tend to systematically overestimate their possibilities, under others to underestimate what is possible for them. This behaviour can be explained by differentiating between an ipsative possibility set (which includes what individuals consider relevant for themselves) and on objective one. These two possibility sets do not necessarily coincide. The difference may firstly be due to psychologicol processes as well as factors such as tradition and ideology. The difference may secondly be strategically designed by the individuals themselves (...) knowing that they otherwise reach less utility. The approach stresses that it is essential to determine the possibility sets within which individuals rationally decide between alternatives. (shrink)

Human beings under some conditions tend to systematically overestimate their possibilities, under others to underestimate what is possible for them. This behaviour can be explained by differentiating between an ipsative possibility set (which includes what individuals consider relevant for themselves) and on objective one. These two possibility sets do not necessarily coincide. The difference may firstly be due to psychologicol processes as well as factors such as tradition and ideology. The difference may secondly be strategically designed by the individuals themselves (...) knowing that they otherwise reach less utility. The approach stresses that it is essential to determine the possibility sets within which individuals rationally decide between alternatives. (shrink)

My contribution presents a possibility to unify Europe based on newly emerging political units focused on solving problems rather than on historically given nation states. These Endogenous Political Entities, as they shall be called, are better suited to reach the goals of European unification as they strengthen the fundamental European values of variety and freedom. I make three propositions: to base the unification of Europe on nation states is unfortunate as the latter are responsible for the political disaster of the (...) two World Wars; the unification must proceed in a problem-oriented manner. The constitution of Europe must allow and promote EPE to emerge specifically to deal with particular problems; the new political units can be introduced in marginal steps. Over time, a flexible and dynamic net of political entities will arise taking care of the large economic, social and cultural diversity in Europe. (shrink)

States are ill equipped to meet the challenges of a globalized world. The concept of citizenship with its rights and obligations, including the allegiance owed, is too narrowly defined to exist only between individuals and a state. Today, people identify with, and pay allegiance to, many organizations beyond the state. This article suggests that citizenship could be extended further and be possible between individuals and quasi-governmental organizations, as well as non-governmental organizations, such as churches, clubs, interest groups, functional organizations and (...) profit firms. Due to the larger set of types of citizenship individuals could choose from, their preferences would be better fulfilled and, due to the competition for citizens induced among organizations, the efficiency of public activity would be raised. Key Words: citizenship • public goods • clubs • political competition • nations • globalization. (shrink)

Since international trade leads to prosperity, most economics are in favor of globalization. This basic conviction is shared in this paper. Several standard arguments brought forward by critics of globalization - e.g. the claims that globalization increases poverty, destroys jobs, undermines the welfare state, enables international corporations to seize power and leads to environmental degradation and uniform culture - are shown to be invalid. Nevertheless, compared to orthodox economists, a more critical view of globalization is proposed in this paper, and (...) several shortcomings of globalization are discussed. These shortcomings are the unidirectional trade liberalization at the expense of developing countries, international organizations, like the IMF of World Bank, representing narrow economic interests and, above all, the lack of 'global governance'. Therefore, the implementation of functional overlapping competing jurisdiction is put forward. It is argued that the alternative proposition of a world government is dangerous, and global solidarity ineffective. (shrink)

This paper analyses whether the aggregation of individual happiness scores to a National Happiness Index can still be trusted once governments have proclaimed their main objective to be the pursuit—or even maximization—of this National Happiness Index. The answer to this investigation is clear-cut: as soon as the National Happiness Index has become a policy goal, it can no longer be trusted to reflect people’s true happiness. Rather, the Index will be systematically distorted due to the incentive for citizens to answer (...) strategically and the incentive for government to manipulate the Index in its favour. Such a distortion would arise even if the measurement of subjective well-being correctly reflected actual happiness before the intervention of government. Governments in a democracy should establish the conditions enabling individuals to become happy. The valuable and important results of happiness research should be introduced into the political process. Each person should be free to pursue happiness according to his or her preferences. This process is supported by obedience to the rule of law, human rights and free media, as well as by extended political participation rights, decentralized public decision-making, an open and effective education system fostering upward mobility and the possibility to find suitable employment. (shrink)

Many academic economists take it as a matter of course that economics should become a natural science. Such a characterization misses an essential aspect of a social science, namely reactivity, i.e. human beings systematically respond to economic data, and in particular to interventions by economic policy, in a foreseeable way. To illustrate this finding, the paper uses examples from different fields: happiness policy, world heritage policy, and science policy. Reactivity requires a different policy approach from governments claiming to maximize social (...) welfare in the form of happiness. What is needed are basic constitutional provisions, or “rules of the game”, decided behind the veil of ignorance. Moral considerations must enter when the basic rules setting the way in which individuals interact are determined. Moral aspects are also indispensable as guidance to individuals when they take decisions within these rules. It is most unlikely that intelligent learning machines can fulfill this task in an acceptable manner. (shrink)

Cet article présente une analyse statistique de la position des économistes français et des spécialistes français des sciences de gestion parmi les chercheurs européens de haut rang. La preuve empirique révèle que la France ne développe pas fortement ses ressources humaines sur la scène internationale. La position de la France en Europe, repérée par les citations et les nominations par les pairs des chercheurs de haut rang et normalisée par la taille de la population, est seulement au neuvième rang en (...) ce qui concerne les sciences économiques et au huitième rang pour les sciences de gestion. Cela laisse penser que la politique scientifique a encore beaucoup à faire pour améliorer la situation.This note provides a statistical analysis of the position of French economists and French management scientists among the leading European scholars. The evidence shows that France does not strongly develop its human resources in the international setting. France’s position in Europe based on citations and peer nominations of the leading scholars normalized by the size of the population is only rank 9 with respect to economics, and rank 8 with respect to management science. This suggests that there is considerable scope for science policy to improve this situation. (shrink)

Democracies find it difficult, and sometimes impossible to get through projects desired by a large share of the population because these are strongly opposed by local residents (NIMBY: Not In My BackYard). As a solution for these conflicts, economists proposed offering (monetary) compensation to the citizens of the host community. Experiences with many different projects and countries reveal, however, that monetary payments are incapable of solving the NIMBY-problem. A monetary offer to accept an otherwise undesired project undermines civic virtue. This (...) crowding-out effect is empirically demonstrated using the search for a nuclear repository in Switzerland. A satisfactory strategy to overcome the NIMBY-problem takes into account the procedure, the time sequence, as well as the type of compensation offered. (shrink)

Strong forces lead to a withering of academia as it exists today. The major causal forces are the rankings mania, increased division of labor in research, intense publication pressure, academic fraud, dilution of the concept of ‘university’, and inadequate organizational forms for modern research. Academia, in a broader sense understood as ‘the locus of seeking truth and learning through methodological inquiry’, will subsist in different forms. The conclusion is therefore pessimistic with respect to the academic system as it presently exists (...) but not to scholarly endeavour as such. However, the transformation predicted is expected to be fundamental. (shrink)

This reply focusses on three aspects: advantages and disadvantages of our proposed ‘cooperative entry certificates’ for the countries of origin, for the migrants, and for the host countries. It analyzes in what respects our proposal can be improved based on the valuable points made by the commentators. In addition, the question of how to deal with winners and losers within the three groups is discussed.

Large-scale migration is one of the most topical issues of our time. There are two main problems. First, millions of persons will enter Europe in the short and middle run in spite of the firewalls we have built. When the income levels in the development countries raises, the migration pressure will even become stronger for a long time. Second, the present integration policy in most European countries is deficient. In contrast to common knowledge, strong social benefits for migrants, multicultural policies (...) and fast naturalization do not further integration. To address these two problems we propose a procedure that takes into account that most migrants react to incentives in a rational way. Migrants in our countries are joining a cooperative and take advantage of many collective goods and social institutions the citizen of the immigration countries have provided. Migrants therefore should pay an entry fee to join the cooperative. This proposal has positive consequences for both the countries of immigration and of origin, as well as for actual and would-be immigrants. It has many advantages compared to other schemes. (shrink)

Over the last decades, empirical research on subjective well-being in the social sciences has provided a major new stimulation of the discourse on individual happiness. Recently this research has also been linked to economics where reported subjective well-being is often taken as a proxy measure for individual welfare. In our review, we intend to provide an evaluation of where the economic research on happiness stands and of three directions it might develop. First, it offers new ways for testing the basic (...) assumptions of the economic approach and for going about a new understanding of utility. Second, it provides a new possibility for the complementary testing of theories across fields in economics. Third, we inquire how the insights gained from the study of individual happiness in economics affect public policy. (shrink)

Over the last decades, empirical research on subjective well-being in the social sciences has provided a major new stimulation of the discourse on individual happiness. Recently this research has also been linked to economics where reported subjective well-being is often taken as a proxy measure for individual welfare. In our review, we intend to provide an evaluation of where the economic research on happiness stands and of three directions it might develop. First, it offers new ways for testing the basic (...) assumptions of the economic approach and for going about a new understanding of utility. Second, it provides a new possibility for the complementary testing of theories across fields in economics. Third, we inquire how the insights gained from the study of individual happiness in economics affect public policy. (shrink)