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Happiness, Utility and Externalities

I just came across an interesting interview with Betsey Stevenson of the Wharton School of the University of Pennsylvania, posted at the website for Qn, a publication of the Yale School of Management.  Prof. Stevenson discusses an emerging area in behavioral economics, the use of the concept of individual happiness as a factor in fields such as policy and management.

In the interview, Stevenson relates some of the subtleties in the discussion of how happiness and utility are related.  She quotes Gary Becker (Nobel laureate economics professor at the University of Chicago) who maintains that happiness is a component of rather than the entire representation of utility.  The interview is long enough to cover some interesting ground and short enough to be read quickly.

Okay, so I haven't mentioned externalities.  I confess to false advertising.  But my point is that Stevenson didn't mention them either.  It seems to me that discussing happiness and utility without considering externalities is something like going to a gala all night party without considering the next day's hangover.

Some definitions for the casual reader:

Utility - Ability of a good or service to satisfy the needs or wants of a consumer.  (Business Dictionary.com)

Externality - An effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account. (About.com)  Environmental pollution is a commonly recognized externality.

Happiness - If you need a definition then you wouldn't understand one if it was given. 

Disclosure: No stocks mentioned.