The Pursuit of Happiness – What a task!

Macroeconomics has many different models. Essentially, every single model seems to be such an absurd abstraction from reality that one may ask oneself: What do we learn from such unrealistic models? The answer is quite simple, really: We learn to dissociate different effect and properly attribute them to its rightful causality. In reality, all things are happening at the same time, making the consequence easy to observe, but not necessarily comprehend the inner process.

Among all the set ups for utility (welfare) functions there exist in Macroeconomics, the one that strikes me the most is U_{t}(C_{t},1-L_{t}), in which we define the representative agent gains welfare from things he consumes, and also from leisure (defined here as (1-L_{t}) which is 100% of your available time minus the proportion of your time dedicated to work). In order to consume, the consumer needs money, money comes from labor. By working, the consumer gives up leisure, which ultimately reduces welfare. In order to get leisure, the consumer must give up some allocation of time from work, which reduces his budget, which implies he can no longer consume as much, and reduces welfare. It is an eternal battle for happiness, and anytime one tries to increase it from one source, one decreases is from another source. It is an infinite battle, an infinite trade off and eventually we realize there is only so much we can do in our lives.

Watching the very interesting video below, and also as an attentive observer of Human Life and behavior, some things can be highlighted:

  • Happiness isn’t as simple as Economists describe into that Utility function,
  • It is also not much more complicated than that.
  • A recent study from UC Berkeley [click here] shows that 47% of PhD students suffer from depression (yes, that is about half of us), and about 37% of Master students. Looking at this Utility function I’ve mentioned before, it isn’t hard to understand why. Being a full time student in such competitive and demanding programs means we don’t get a lot of available time for leisure. Living on a stipend, this also means we don’t get to consume much either (this is not saying humans are materialistic, but we would like to fulfill our physical needs, as well as emotional, and entertaining, etc…all this costs money. Even to see my family, costs a lot of money).
  • Shawn Achor, the speaker in the video, mentions his studies in Psychology with Harvard students, and how the greatest mistake people make is thinking happiness is embedded in external things. I couldn’t agree more. At this point, you might be thinking I am a hypocrite, I’ve just described a Utility function based on leisure and consumption. Yes, it might seem this way for all who are quick to judge. Utility is indeed a function of those things, but just like any function, it maps one thing to another. The characteristic of this mapping is intrinsic to each individual. I attribute welfare to a flight ticket not for the sake of flying, but because I see it as a link to my dear ones who are far away. I value leisure not for the absence of work but for the time I get to spend in personal growth and recovering my energies. Essentially, happiness is this entity whose existence, nature, properties, qualities or relations are not directly observable by humans. Economists deal with it by seeking observable variables that can give a better clue to the ultimate unobservable welfare.
  • Shawn Achor also makes a valid criticism in his talk regarding the way Economists and Statisticians treat Outliers. The reason why Outliers are treated this way isn’t so much because of measurement data, but rather the reason I’ve mentioned before: Trying to separate effects: which sort of behavior is common, which isn’t. The ones that are common will be modeled into a standard agent theory, the ones that aren’t happen to the reason why Economics is so interesting: Human Beings are different! There has been some very interesting work done in Microeconometrics which focus on interpreting and understanding the behavior of Outliers.

If so many PhD and Master students suffer from depression, why do they do it? I don’t know why they do it, but I know why I do it. For me, it is the puzzle, the journey to understand people, how they make decisions, what are the hidden incentives that underline all our actions. Remember I said Happiness isn’t as simple as I first described into my Utility function? There is a fundamental source of welfare in my life that isn’t described there: The intellectual satisfaction of discovering something new.