Everyday Life

How to be Happy

Happiness and Economic Behaviour

            Now that we have understood the psychological and economic background factors that influence happiness, we can examine the relationship between happiness and economic behaviour.

            Problems with Data

As mentioned before, economic experiments can be unethical or prohibitively expensive to undertake, and as such, save the fortunate case of a natural experiment, findings can be used only to show correlation, and not causality. Furthermore, while we determined before that self-assessment of social wellbeing is the preferred measure of happiness, several problems arise with its use. First, because participants in an experiment themselves choose their actions, “differences in mood-improvement may be driven not by the behaviour itself, but by underlying differences between those choosing different behaviors.”[13] While this could be solved by assigning specific actions to certain participants, because the action would not chose by the participant themselves, the resulting change in mood or happiness may not be “real.” Furthermore, there is always the generalization problem, wherein the people who choose to participant in an experiment may not be representative of the general population. Perhaps the most severe limitation to studies in this field is identifying any effects of behaviour on happiness in the long-term, as once the study is concluded, any changes in happiness cease to be observed. If the changes are in fact only temporary deviations in mood, then most results do not represent changes in an individual’s long-term level of happiness, but perhaps it would be possible to shift the natural level of happiness by frequently and consistently engaging in these behaviours.


The literature of happiness economics paints a clear negative relationship between happiness and selfishness, with selfishness appearing to cause unhappiness in the short term, and “growing evidence that this also holds in the long term.”[14]


Happiness and trust have a strong positive correlation, and the evidence suggests that trust, in fact, causes happiness, in the long-term, while its effect in the short-term seems to be “positive or null.”[15]

            Time Preferences

  Short-term happiness seems to increase patience over monetary gains, while short-term unhappiness appears to worsen time inconsistency. Furthermore, time inconsistency seems to lower happiness in the long-term.[16]

How to be Happier

            Studies in the field of happiness economics tend to suggest that happiness results from pro-social behaviour, suggesting that working towards the common good helps to foster and reinforce happiness in the long term. Sifting through the findings of behavioural economics, happiness economics, and econometrics can yield insights about how to be happy, or at least, how to maximise happiness. The following are some tips resulting from the findings of this paper.

  1. Ditch the social comparisons. There is always going to be someone who has it better, and someone who has it worse. In order to maximise your appreciation for what you have and the progress you’ve made, focus on yourself, and don’t compare yourself to those around you.
  2. Edit your reference points. Rember how happy you were when you first bought your favourite pair of shoes, or got into your university, or landed your dream job? If you don’t still wake up every day elated about that purchase or that job, chances are you’ve incorporated this development into your reference point, your baseline happiness. Take time to think about what you have, what you’ve achieved, and practice gratitude daily. This will help to reset your reference point and appreciate the gains you’ve made.
    1. Bonus tip: Using our knowledge about utility functions, we can manipulate our perceptions to increase our happiness, without changing our endowments, which goes against neoclassical economic theory. According to prospect theory, bundling madders: if you segregate gains, you have time to adjust your reference point before incorporating the value of your second gain. Because the value function is concave in the domain of gains, people value gains more when they are segregated. So, to be happier, evaluate each part of a gain separately, taking the time to appreciate each and every aspect. Conversely, segregate your losses, taking them as “one big hit.” Cancel your small losses against your large gains but segregate your large loss from your small gains.[17]
  3. Prioritise mental health. Make time for self-care and take a day off. This time will not only help you to relax, destress, and appreciate what you have, but also be better spent than your working hours.
  4. Put others first. Acting selfishly damages your happiness, and you can promote your own happiness by helping others.
  5. Surround yourself with people you trust. Focus on creating meaningful relationships and put your trust in your true friends.
  6. Make up your mind. Think long and hard about your choices, and once you make a decision, stick to it. Same goes for your goals.




[3] Ibid




[7] Cameron, R. and L. Neal [2016]; A Concise Economic History of the World (Oxford University Press), Ch. 15: Rebuilding the World Economy, 1945-1989







[14] Ibid.

[15] Ibid.

[16] Ibid

[17] A Course in Behavioral Economics, by Angner, Erik ( Palgrave Macmillan,  New York, 2012)

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