Hedonomics – The (Behavioural) Economics of Happiness


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In 2004 I came across a treatise on the subject of happiness, and how to achieve it, in quite possibly the last place on earth I would have expected to find it: a newsletter published by an investment bank. The author’s name was James Montier, a stock market analyst. In the very first paragraph, he took the unusual step of cautioning any reader who was seeking specific investment advice to read no further. This was a very prudent step because his first recommendation for living a happier life was that his profit-hungry readers should not equate happiness with money. His nine other tips for improving wellbeing included getting plenty of exercise, sleep and sex, doing enjoyable work, meditation, and developing close personal relationships. None of the tips depended directly on money.

The ten recommendations were not just the musings of a disgruntled banker, but a résumé of scientific research on happiness. Still, had he conducted a straw poll among his friends, family and colleagues by asking them what would make them happy, I am not sure all of those things would have figured among the responses. At least, when I tried my own informal research, only sleep and sex figured among the happiness-bringing requests. Money in its various forms (lottery wins, etc.) occurred quite frequently, as did chocolate, coffee, vacations, and larger breasts, all of which required money.

It seems that for most people, the pursuit of happiness begins by taking out their pocketbooks. Montier probably also noticed that his much-needed appeal for sanity did not mark the end of our money obsession. The bankers, brokers and investors who read his newsletter did not hang up their phones, switch off their screens and rush into the streets in search of new meaningful careers, closer relationships or just a proper night’s sleep. The opposite was the case, in fact; in the years that followed Montier’s appeal for sanity, the entire industry embarked on quest for monetary wealth of such unprecedented scale that it ultimately resulted in a global financial crisis. He was not wrong to make his appeal, but he was perhaps naïve to believe that it would make the blind bit of difference. Given that people seemed determined to use money to acquire happiness, a more reasonable goal would surely have been to show them how to do it properly.

Happiness is anyway something of a nebulous term. This is why some of the early research into the topic seemed somewhat vague or even contradictory; different scientists were simply talking about different things. We use the expression ‘happy’ to describe the feeling we have when we bump into an old friend, or when we have just finished polishing the car. We make do with the same word when we unexpectedly win a prize, smell our favourite food cooking, or work the last day before a holiday. Obviously, these are not all the same kind of happiness. Any strategy that seeks to maximise ‘happiness’ must therefore start with a clearer definition of what it is and accept that a different approaches might be necessary for achieving this goal.

A second obvious concession is that money cannot always be involved in our happiness, however we define it. For example, as you will see later, a part of our cheerful disposition is innate – it is in our genes. This is a sobering thought for those of us who chose our parents unwisely because no amount of money can correct shortfalls in this department. Another part of our happiness comes as a free gift from the situation, like a chance encounter with an old friend or fine weather on your day off. We call it luck. The great feeling we have on the last day of work before jetting off on vacation is also free, one could argue. But one must not forget that it is only free once one has paid for the getaway.

My interest is in the part of happiness that can be directly or indirectly influenced by the way we decide to spend our money. It might not surprise you to learn that it is probably a relatively small part. However, spending money is often the first activity we indulge in when he embark on our quest for happiness – we buy stuff. We will invest in new cars, houses, clothes, sugary treats, gadgets, holidays, spa treatments, all in the hope that they will make us feel better. And they generally do, but not all to the same degree and not all for the same length of time. Nor is the happiness we extract from these purchases necessarily equivalent to the amount of money we invest in them.

Hedonomics – The (Behavioural) Economics of Happiness


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