Measures of Inequality: Application to Happiness in Nations
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What is a good measure for happiness inequality? In the context of this question, we have developed an approach in which individual happiness values in a sample are considered as elements of a set and inequality as a binary relation on that set. The total number of inequality relations, each weighed by the distance on the scale of measurement between the pair partners, has been adopted as an indicator for the inequality of the distribution as a whole. For models in which the happiness occurs as a continuous latent variable, an analogous approach has been developed on the basis of differentials. In principle, this fundamental approach results in a (zero) minimum value, and, more importantly, also in a maximum value. In the case where happiness is measured using a k-points scale, the maximum inequality is obtained if all 1/2N sample members select the lowest possible rating (Eq. 1) and the other 1/2N the highest possible one (k). This finding even applies to the truly ordinal case, i.e., if the distances between the successive ratings on the scale are unknown. It is, however, impossible to quantify the inequality of some measured sample distribution, unless all distances of the k categories of the scale of measurement are known or at least estimated, either on an empirical basis or on the basis of assumptions. In general, the numerical application of the method to continuous distributions is very complicated. An exploration on the basis of a relatively simple model with a linear probability density function suggests that the inequality of a beta probability distribution with shape parameters a and b increases as the value of these parameters decreases. A contour plot, obtained by numerical integration, demonstrates this relationship in a quantitative way. This approach is applicable to judge the aptness of common statistics of dispersion, among which the standard deviation and the Gini coefficient. The former is shown to be more appropriate than the latter for measuring inequality of happiness within nations.
- beta distribution