Does Advertising Increase Happiness? A new study suggests the answer is yes

A forthcoming empirical study published in the Journal of International Business Studies authored by David A. Griffith (Texas A&M University), Hannah S. Lee (Miami University) and Goksel Yalcinkaya (University of New Hampshire) entitled “Understanding the Relationship between Advertising Spending and Happiness at the Country Level,” finds a positive correlation between country-level ad spending and happiness. The study is particularly interesting in the context of the historical debate on the role of advertising in society, especially given the level of criticism aimed at the advertising industry.

The main objections to advertising at the societal level have remained fairly constant over time. A 1925 article by Fred Clark of Northwestern University in American Economic Review cited and analyzed five main criticisms of advertising: 1) it is costly and socially wasteful; 2) it promotes materialism; 3) it raises prices; 4) it increases the desire for luxury and leads to the purchase of useless products; and 5) it’s often a waste of money because it’s not always effective. Clark’s conclusions regarding these criticisms were mixed, and the role of advertising in society remained a controversial topic.

Within academia, the debate over the economic and societal impacts of advertising has been categorized into two schools of thought. The Advertising = Market Power school views advertising as leading to primarily negative outcomes, including the creation of monopolistic effects. In this view, advertising is seen as raising barriers to entry and concentrating market share among a few large companies, allowing them to make excessive profits. The Market Power school posits that there are significant negative impacts on consumers, including higher prices due to companies needing to recoup dollars spent on advertising, as well as getting consumers to becoming more materialistic and desiring products they don’t need.

The information school takes a much more optimistic view of the impact of advertising, stating that advertising is useful in informing consumers about products and their features in a way that leads to search effectiveness. and the ability to purchase products that meet legitimate wants and needs. This school argues that advertising improves innovation and lowers prices as producers achieve various economies of scale. Furthermore, the information school argues that market entry and competition are encouraged because innovations can be effectively communicated to consumers.

Academic research results have been more favorable to the school of information over time, especially studies focused on industry concentration, pricing, and consumer satisfaction. Yet legitimate concerns remain in some areas related to advertising, including misleading practices and the targeting of vulnerable populations and how regulation should address these issues. In this light, the Griffith study is particularly important because it examines advertising and happiness at a macro level.

The Griffith study focused specifically on levels of advertising spending and whether there is a correlation with happiness while controlling for and analyzing the possible impact of different institutional environments (political, regulatory and social). The study was inspired in part in response to a study published in Harvard Business Review in 2020 that reported a negative relationship between advertising and happiness. However, as Griffith, Lee and Yalcinkaya rightly point out, the HBR study did not consider country populations and used an underspecified model due to the exclusion of institutional factors.

Drawing on the theory of competitive rationality, according to which businesses in free markets only thrive when they seek to satisfy the needs of customers and that information about the satisfaction of needs must be communicated to the consumer, the study analyzed ad spend data from eMarketer as well as panel data from 34 countries and data on happiness levels from the World Happiness Report (eMarketer and the World Bank). These data were supplemented with country-level data from the Heritage Foundation’s Index of Economic Freedom on the degree of regulation and regulatory effectiveness, conservatism, as well as data on conservatism and levels of self-reliance. – improvement drawn from the work of social psychologist Shalom Schwartz.

The main finding of the Griffith study is a positive association between ad spending and happiness at the national level. The authors also found that the relationship between ad spending and happiness was amplified in countries with strong rule of law, but dampened by high regulatory efficiency. Meanwhile, a country’s level of conservatism and self-improvement had no impact on the relationship between advertising and happiness.

In explaining the results of the study, Griffith emphasizes the informative role of advertising, stating, “Advertising plays an informative role in society. Advertising presents consumers with product information that allows them to better understand which products will improve their lives, thereby increasing their happiness. »

Griffith further notes that more research would be useful to better understand the role of advertising in society, going beyond the simple relationship with happiness:

“In terms of ad spend, one might ask, what is the relationship between national ad spend and employment (both inside and outside the ad industry)? “Does advertising spending create a multiplier effect on an economy for the benefit of its citizens? Does advertising fuel consumption, which stimulates demand and increases employment, thereby reducing poverty? Is this effect consistent across all global markets, or does national advertising regulation increase or decrease the ability of advertising spending to benefit society? Taking a more mindful view of advertising spending, one might ask what is the relationship between advertising spending and the financial debt burden of members of a society? Or what is the relationship between advertising spend and fuel consumption and resulting consumer waste (e.g. textile waste, single-use plastic)? »

Griffith also notes the need to monitor advertising practices and prevent abuse, noting that “Although our results indicate that advertising expenditure is positively associated with happiness via its informational role in society, there are times when advertising is less than honest with consumers. Advertising should not be misleading. He believes that health-related products, those for finance-related products, and advertisements that falsely imply affiliation with an agency or program governmental (other than in fine print).

Of course, assessing the role of advertising in society in complex and specific issues requires continued study, including some more recent issues related to artificial intelligence and targeting issues. Nonetheless, this new study by Griffith, Lee, and Yalcinkaya adds important perspective when looking at the role of advertising from a macro perspective.

About Cedric Lloyd

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