This paper has proposed a new line of inquiry by employing crucial arguments from psychology within an economic approach, thus substantiating the term ‘psycho-economics’. The opportunity to pursue this new kind of investigation comes from growing interest among economists in the happiness paradox. Recently, in fact, this paradox has turned the old question of ‘why money does not buy happiness’ into why human rationality allows well-being to deteriorate when affluence has freed the advanced countries from material necessities.
Two key arguments drawn from psychology, with the help of neuroscience and sociology, have been employed to solve the paradox. First, close personal relationships are most important for human well-being, and must play a central role in human life, while income appears to have a small although necessary role. Secondly, not only do emotions and affects arise spontaneously, basically within personal relationships, but also feeling for and understanding the feelings of others largely lie outside consciousness; they depend mainly on primary experiences during infancy with caregivers, and they may be partly lost if frustrated. This paper has elaborated these arguments within the economic approach by including relational goods vis-à-vis market goods in the utility functions, and by assuming that satisfaction from relational goods depends on the affective disposition toward others.
This kind of ability is characterised by feelings and emotions, so that it is only partially observable, and it can be lost if frustrated. Consequently, the satisfaction expected from relational goods may be disappointed without there being much possibility to learn, while market goods and ‘materialism’ become more appealing. Primary satisfaction of the relational goods during the first part of the life-cycle is thus vital to escape from the vicious circle of disappointments, and the shift toward market goods and intense work. By contrast, even a dramatic shift to materialism and hard work is only partially successful within one generation, and unsuccessful for a succession of generations. This solution of the paradox also explains why other solutions appear partial or inadequate.
The arguments that people strive for money in order to keep up with the Joneses, and that every advance in consumption is subject to habituation, become sound arguments for the long-run as well if the search for greater well-being in the more promising domain of personal relationships is frustrated. Regret at having opted for market goods is impeded, and ‘cognitive dissonance’ can be explained. Also the arguments based on the irresistible attractiveness of the materialistic social model become convincing if the vulnerability of people to this model is explained. Analogously, Scitovsky’s (1976) claim that the choice between goods for pleasure and goods for comfort is not sufficiently controlled by individuals can be explained. By contrast, apparently inadequate are arguments based on social capital, on trust, and on the particular disposition toward others often called altruism, when treated as completely self-managed assets.[30]
In the model proposed the key variables for policy prescriptions are S* and s*, i.e. the conditioning of socio-economic environment and organisation made effective by the degree of people’s vulnerability (ry). Changes in this environment and organisation to reduce S* and s* thus become urgently necessary to improve the long-run dynamics of well-being. Alternative models to the materialistic one should be offered, so that new attention is paid to people’s disposition to relatedness. For example, in child rearing and youth education, attention should be paid to teaching not only about the material world but also about aspects of limited observability like disappointment in personal relationships, and the ensuing reactions.
This requires specialists, research, and, generally, resources. But the advanced economies tend to devote as many resources to the youngest part of the population as homo economicus would strictly prescribe. The outcome of this tendency can be predicted by the model if all individuals are ‘avoidant’ and belong to group III, which better captures the species homines economici. What we can expect is a marked definite decline of well-being, and more striving for money.
30 The solution offered by psycho-economics allows us also to supersede the two original views on how to pursue happiness, i.e. Epicurean hedonism, on the one hand, as the purposeful but short-sighted search for bodily pleasure, on the other, Aristotelian eudaimonia, as the rational governance of the various relevant domains of human life. Here, neither simple physical drives nor rationality are useful guides for happiness.
By Prof. Maurizio Pugno
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