Happiness, higher wants, and policy evaluation

What the paper says

Institutions and public policies are increasingly evaluated by their effects on self-reported happiness or life satisfaction. Yet if institutions shape not only outcomes but also the aspirations against which outcomes are judged, reported well-being can be a misleading welfare metric. This paper develops a simple dynamic framework that makes this problem precise by bringing together two ideas. From Arthur Schopenhauer, it takes the insight that aspirations adapt endogenously, so that hedonic gains from improvements tend to dissipate as standards adjust. From Frank Knight, it takes the claim that welfare depends partly on cultivating “higher wants”: developing capacities, projects, and evaluative sophistication, not merely satisfying given preferences. Individuals in the model invest in “taste capital,” which is treated as intrinsically valuable in the welfare criterion but which also raises the aspiration benchmark. Any positive weight on taste cultivation shifts the welfare optimum toward sustained investment and higher long-run aspirations, which can widen aspiration gaps and lower experienced well-being even as overall welfare rises under the criterion. The analysis formalizes a mechanism through which aspiration-raising institutions, such as education systems and meritocratic norms, can be welfare-improving while appearing welfare-reducing in happiness data. It also clarifies the normative commitments embedded in treating subjective well-being as a sufficient statistic for policy evaluation and the supplementary evidence required when institutions shape aspirations.