We model happiness as a measurement tool used to rank alternative actions. Evolution favors a happiness function that measures the individual's success in relative terms. The optimal function is based on a time-varying reference point - or performance benchmark - that is updated over time in a statistically optimal way in order to match the individual's potential. Habits and peer comparisons arise as special cases of such an updating process. This updating also results in a volatile level of happiness that continuously reverts to its long-term mean. Throughout, we draw a parallel with a problem of optimal incentives, which allows us to apply statistical insights from agency theory to the study of happiness.
|Original language||English (US)|
|Number of pages||36|
|Journal||Journal of Political Economy|
|State||Published - Apr 2007|
ASJC Scopus subject areas
- Economics and Econometrics