This article appeared in The Solutions Journal
I have recently been studying positive psychology, a branch of psychology founded by Martin Seligman and Mihaly Csikszentmihalyi in 1998.[1] I had previously been prejudiced against a subject described as ‘the science of happiness’, my view being that the pursuit of happiness is a fruitless undertaking; you will always be trying to attain the next happiness ‘hit’. Personally, I believe in developing your own meaning in life and I agree with Aristotle about the importance of cultivating one’s own virtue.
My motivation for investigating positive psychology was purely instrumental; I feel my personal performance could be enhanced by improving my mental health; the modern word contains a great deal of pathologies for mental health and it’s a necessity to build mental resilience to avoid the negative consequences to wellbeing. The findings from positive psychology are useful in this respect, in that they recommend a series of practices and attitudes which have subjectively improved my well-being and resilience; particularly helpful in the time of Covid. My prejudice against the subject proved unfounded: the findings of positive psychology concur with my own intuitions about meaning and well-being.
However, in studying positive psychology I was struck by its implications for the economics profession and the economy, which is the subject of this essay. To cut to the chase (and a big spoiler alert) positive psychology has found that these are the kind of things that are important for ‘happiness’ (loosely defined): Sleep, exercise, social relations, meditation, acts of kindness, savouring, gratitude, flow activities.[2] None of this will come as a surprise to non-economists, being in line with ancient wisdoms from most traditions.
In contrast what doesn’t make you happy are things like money, a good job, a good body, material possessions and good school grades.2 This might be more of a surprise; surely, having a good job or money makes you happy? Positive psychology argues that you start with a base level of happiness; good fortune, such as landing your dream job, getting married or winning the lottery, will give you an instant boost of happiness, but then, surprisingly quickly, you return to your base level. The same is also true of bad fortune; there is an immediate lowering of happiness, but it also returns to the base level.
There is an important proviso, happiness does increase with income up to a certain threshold and then it flattens off. Above the threshold level you get a treadmill of desire – people with income of $100,000 think they’ll be happy if they had an income of, say, $200,000; people with $1m think they’ll be happy with $2m, etc. A lot of this is because people tend to hang out with other people of similar income levels, which forms their reference group.
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