Investing in Happiness - Ben Felix
It is addtive to focus on portfolio optimizations the next big thing that promises financial gain or working long hours toward a promotion.
Calling it additive is not hyperbole. In a 2001 study using FMRI to measure brain activity … found that obtaining more money activates the same regions of the brains as illicit drugs. Maybe that doesn’t sounds so bad. More money is always better than less.
Well, here’s the problem. From your brain’s perspective more money is always better than whatever you have today. Even if you already have a lot of money. Knowing that more money is additive an important question for every human investor to ask themselves is how much is enough.
I would ventrue to say that enough is the amount needed to fund a good life. But to fund a good life we need to know what a good life looks like.
Money has the unique ability to move economic value through time. Money made from work done today can be used to fund spending in the future. Time and money are both finite resources that we have to make allocation decision about on a daily basis.
There’s no objectively optimal way to allocate time and money but I’m going to argue that the human investors these decisions should be anchored in the objective of living a good life. So we need to know how to find a good life.
Fortunately, there is a substational body of academic literature on this topic. A large portion of happiness seems to be heritable. Meaning that in sample populations, environmental factors fail to completely explain differences in happiness. Martin Seligman who’s credited with starting the field of posivie psychology suggests a baisc equation for human happiness.
Happiness euqals your biological set point plus your circumstances, plus the factors under your voluntary control.
Research and positive psychology has suggested varying levels of contributions from each of these items overtime.
The important insight for financial decision making is your circumstances, your environmental and demographic factors like where you live, your health age, education, intelligence, and gender don’t seem to matter all that much to happiness.
But your voluntary activities how you choose to allocate your time and money do allow you to exercise significat control over your happiness.
Voluntary activities are more important than circumstances in explaining difference in happiness. The reason the circumstances don’t seem to matter much is that humans are incredibly adaptable. We adapt quickly to our circumstances both good and bad. This doesn’t mean that circumstances should be ignored altogether.
In the happiness hypothesis, Jonathan explains that noise especially variable or intermittent nosise interferes with concentration and increase stress so living next to a busy intersection or otherwise noisy area may not be ideal. Commuting particularly in heavy traffic increases stress and is not easily adapted too.
And being in control or even just the feeling of being in control increases happiness.
There’s also lots of evidence documented in John celenski’s book - positive psychology. that living near and spending time in nature increases happiness.
In broad terms, there are two types of happiness.
Experienced happiness which is best described as good feeling and reflective happiness or life evaluation which is best described as a deeper sense of fullfillment or being your best self.
Good feelings like pleasure and comfort are referred to as ‘Hedonia’. For example, eating chocolate or petting a soft bunny can be hedonic. Hedonia contrasts with eudomonia which was first described by aristotle and is best translated to flourishing.
Hedonia is relatively easy to think about. you know it when you feel it. Eudomonia takes more reflection and thought. One way to measure eudomonia is using the cantrill ladder. Imagin a ladder with ten steps numbered from zero to ten, the top step represents the best possible life for you and the bottom is the worst on which step of the ladder do you feel that you are standing on.
Eudomonia is more about living well while hedonia is more about feeling good. Both eudomonia and hedonia are important aspects of a happy life and neither are sufficient on their own. Together they result in a well-being. Martine Seligman proposed five distinct components of well-being in his five-factor perma model. Positive emotion which is feeling good. Engagement which is flow or being absorbed in a challenging task, Strong healthy relationships meaning a sense of purpose beyond yourself and accomplishment achieving valued goals. Each of these elements is pursued for its own sake not as a means to an end and is defined, and measured independently of the other factors.
The perma model for well-being highlights that a happy life is more than experiencing pleasant feelings. This can be a challenge for humans because of our two-speed.
In Thinking fast and slow Denial Kahneman delineates two types of thinking system.
4:53
