Paradox and Perception: Measuring Quality of Life in Latin America

1 How Latin Americans Assess Their Quality of Life: Insights and Puzzles from Novel Metrics of Well-Being

1 1 This book is an attempt to better our understanding of the determinants of welfare in Latin America and the Caribbean,1 a region that is diverse in terms of culture and levels of development. Some countries in the region are approaching developed country standards of living, while others approximate the per capita income levels of sub-Saharan Africa. Further, as is well-known, the region has relatively high intra-country variations in per capita income—indeed with the highest inequalities of any of the major world regions. These per capita income differences, in addition to the region’s cultural diversity, provide a laboratory for studying how quality of life varies with a number of important objective and subjective measures, including per capita income but also including others such as job insecurity, job satisfaction, schooling attainment, educational quality, nutritional insecurity, personal insecurity, mortality, and self-assessed health. The concept of quality of life is a broad one, which incorporates basic needs but extends beyond them to include capabilities, as typically measured by the United Nations Development Program’s human development index (UNDP’s HDI); the “livability” of the environment, as measured by income per capita and growth; and life appreciation and happiness, as measured by well-being surveys. In this book we focus on reported or subjective well-being (“happiness” How Latin Americans Assess Their Quality of Life: Insights and Puzzles from Novel Metrics of Well-Being carol graham and jere r. behrman 1. Throughout this chapter, for brevity and ease of reading, the terms “Latin America” and “Latin Americans” are used inclusively to embrace the countries and people of the Caribbean. or “satisfaction”), a concept that differs from but complements other indicators of the quality of life. Our analysis builds upon a number of new approaches in economics , particularly those related to the economics of happiness. In addition to standard “objective” data such as on income, consumption, schooling attainment, mortality and job insecurity, our study relies heavily on surveys of reported well-being, both at a general level and in specific domains. This is a fundamental departure from traditional economics. Most economists historically have shied away from the use of survey data on expressed well-being and instead relied on revealed preferences—via consumption and investment choices— as a basis for analysis. The rationale is that answers to questions about well-being are not good signals of the preferences and constraints underlying actual behavior; there is no consequence to answering surveys, thus they do not clearly identify underlying preferences and/or constraints. In contrast, consumption and investment choices usually reflect a conscious choice about expenditure trade-offs. If the constraints are known, then preferences can be identified more accurately. In addition, unobserved heterogeneities in factors such as personality traits can bias the manner in which people answer surveys. Yet in recent years the use of survey data on well-being has become more accepted. The increase in the number of economists working with such survey data over the past decade has been nothing short of remarkable.2 In part this is because econometric techniques have been developed that allow control for some of the unobserved error/personality traits that might significantly bias the interpretation of responses on well-being as reflecting underlying preferences. And the increasing coverage of large samples across countries and regions with varying levels of development and other conditions gives survey data on well-being tremendous analytical potential. Research by psychologists, meanwhile, demonstrates that answers to surveys are in large part validated by psychological and neurological measures of happiness and well-being. While the traditional reliance on revealed preferences has informed a number of important questions, there are some limitations. One is that there is increasing evidence that factors other than rational choice may drive important consumption and investment choices, including addiction or self control problems on the one hand and low expectations norms on the other. These factors may help explain a number of consumption choices that would otherwise appear perverse from a welfare perspective. A second is that there are a number of choices that revealed preferences approaches cannot answer, precisely because individuals are constrained in their abilities to make those choices, due to lack of agency, lack of information, and other factors related to poverty or discrimination, among other reasons. 2 carol graham and jere r. behrman 2. Clark, Frijters, and Shields (2008). The use of survey data on well...