Markets Weekly Sharebook 

Author: Nelly Naneva, LL.M. MBF; source: Markets Weekly

What is happiness?

This question has perplexed philosophers for centuries. There are a lot of possibilities for what ‘happiness’ may entail: satisfaction needs satisfaction, wellbeing, etc. The happiness literature typically focuses on one of these possibilities or attempts to merge all of them together. Surprisingly, scholars working in the area rarely if ever engage in an in-depth discussion of exactly what it is they are trying to capture versus what it is they are actually capturing through their research tools. The absence of a universal definition of happiness makes measuring actual happiness a difficult task. Furthermore, the lack of a clear definition of happiness poses problems for those aiming to maximize wellbeing.

Can happiness be compared between individuals and across time?

The notion of happiness is not static across individuals at a specific point in time. Because individual values are subjective, we cannot meaningfully compare them across individuals or even across time for the same individual in any objective way. Even though we may be able to compare the relative incomes of two individuals, we cannot say anything meaningful about their relative satisfaction or the wellbeing that those individuals derive from that income. Different people have different needs and share diverse social values: some people place too much focus on tangible goods (i.e. house size, cars, vacations, etc.) while neglecting intangible goods (i.e. commuting time, family time, etc.) and vice versa. All of us undoubtedly endeavor for wealth because it enables us to satisfy our needs – for ourselves, our families, and our communities.

Is there a fixed stock of status?

A core concept in happiness studies is the role of ‘status’, which refers to one’s position relative to others. Just as relative income matters for wellbeing, happiness scholars contend, so does the relative status. They stress on that social status is a &lsquoositional good’ – a good whose value is a function of its desirability in the eyes of others. Positional goods are zero-sum from the standpoint that if one person possesses status, others cannot also hold that same position. This matters for the happiness because when one person obtains a certain status, it imposes negative costs on others because they cannot obtain that same status. Those with a relatively lower status are worse off compared with those in higher-status positions.

Is happiness correlated to our income?

Almost the entire collection of happiness surveys correlate happiness to money, work, health, family relationships, community and friends. But beyond these broad deductions, many potential factors that influence subjective wellbeing still await exploration. Scholars working on happiness typically define happiness as general satisfaction with life. In order to capture wellbeing, economists often rely on surveys, which ask some variant of the question: ‘How happy are you with your life?’ Researchers then compare the responses to these questions, both across societies and against economic outcomes, in the hope of determining what factors influence the overall level of happiness and satisfaction. Many studies have found support for Easterlin’s &ldquorogress paradox” (see Frey and Stutzer, 2002a): when incomes have gone up over time, happiness stayed relatively flat. This is probably as people become wealthier; their expectations also increase, meaning their overall level of happiness remains flat. This implies that even as people work harder to achieve happiness, they ultimately remain in the same place. For example, more effort expended to earn more income results not only in a short-term spike in happiness, but also less time to spend with family, friends and members of the community.

For every living creature, wellbeing and happiness matter tremendously. The pursuit of happiness is a natural and crucial part of the human existence, as philosophers have recognized for many centuries. Happy people on average have more productive and successful careers, are more willing to engage in the risk-taking of the successful entrepreneur, live longer and healthier lives (Diener and Chan, 2001), and even drive more safely (Goudie et al., 2011).

In concluding, we would like to provide an alternative means of thinking about issues of happiness and wellbeing. Given that happiness is subjective in nature and there is no universal definition of happiness, it is our contention that a flourishing human life is one where the individual has the freedom to discover and pursue whatever it is that maximizes his or her own wellbeing. For some a flourishing life will be characterized by a workaholic lifestyle; for others it will consist of a life dedicated to philanthropy and charity.  Reaching happiness is a lifetime project, not anything that can be accomplished at once.