An economic model of subjective well-being: Integrating economic and psychological theories

This paper compares theories of well-being/welfare in economics and psychology. It suggests that economists have an appropriate conceptual framework but the wrong variables for explaining well-being, whereas psychologists have a confusing framework but appropriate variables. A framework derived from “the new home economics” (Becker, 1965, 1973, 1977; Lancaster, 1966; Justeret al., 1985; Pollak and Wachter, 1975), and especially from the work of F. Thomas Juster and his colleagues, is proposed for the purpose of integrating economic and psychological variables into an account of human well-being. Essentially the framework calls for investigation of the impact of a household's economic and psychological stocks (capital account) on the psychic income flows (current account) and overall well-being of its members. It is suggested that this framework is valuable for clarifying individual and household decisions as well as for explaining variance in well-being. Empirical assessment of existing frameworks and an illustration of how the proposed framework could be implemented are made with data drawn from a 5-wave Australian Quality of Life Panel Survey.