Sarah Flèche and Richard Layard have a new paper on this topic, and they suggest a focus on mental illness:

Studies of deprivation usually ignore mental illness. This paper uses household panel data from the USA, Australia, Britain and Germany to broaden the analysis. We ask first how many of those in the lowest levels of life-satisfaction suffer from unemployment, poverty, physical ill health, and mental illness. The largest proportion suffers from mental illness. Multiple regression shows that mental illness is not highly correlated with poverty or unemployment, and that it contributes more to explaining the presence of misery than is explained by either poverty or unemployment. This holds both with and without fixed effects.

I don’t like the term “mental illness,” yet at the same time I reject the Szaszian rejection of the concept. I would say that mental processes can deviate from procedural rationality in especially disadvantageous (and sometimes systematic) ways, and that this is something above and beyond merely having “different preferences.”

For the pointer I thank the excellent Kevin Lewis.