Happinomics

I'm no economist. Not even close. But seeing how the world works, it makes sense for me to have an economic theory of my own. Everybody else has one.
The businessman who tries to maximize profits has one. The politician who spends time, effort and money on his campaign in order to garner more votes does too. The religious leader who uses prayers and piety as a bargaining tool between God and his followers does as well. Even the kid who barters his red candy for a blue one because he has too many red ones has his own economic theory.
While there at least are many theories as there are people, most of them are in a subconscious level. (I think there are a lot more theories than people, because many people have different theories for different commodities and for the same commodity under different circumstances. I could go on about this with examples, but that is better left for another time.) We do not think about all the pros and cons of our decisions, nor can we. But we are driven by incentives, and we should realize what our current incentives are.
Which brings me to my current theme. "Happiness Economics" is a fairly new growth in terms of econoic studies. Quantifying happiness is very difficult, because it is a subjective thing. The 0 to 10 scale is a commonly used tool in this field, mainly because we tend to think in the base ten numeric system.
[0-10 scale:: It is also used in quantifying other subjective things, eg. severity of pain and the apparent beauty of a person of the opposite gender. It is easy to assess by telling the people to raise the number of digits(fingers and thumbs) on their hands that they feel quantifies their happiness. The happiest folks will give you two high fives, and the least happy ones will five you two closed fists. But, some people who are extremely not happy may raise two middle digits at this idea. And while it suggests that someone who has lost a finger or two on their hand can never be as happy as someone who has all their digits intact can be (which might be the case, studies have shown unhappiness increases with loss of body parts), it also suggests that people with polydactyly (extra fingers and/or toes) should be on average, happier than their normal conterparts(not yet verified by studies).]


My economic theory, so far, is based mainly on "Happinomics", an idea that a person tries to achieve an economic state that will maximize both profits(monetary/material/social/spiritual- whatever may be relevant to the case) and happiness. If something is profitable but makes you unhappy, you are unlikely to try to achieve it, unless you belive that the profit may lead to happiness later on, that outweighs or at least balances your current unhappiness.

Happiness achieved by any trade-off is dependent on the initial expectations and how the final outcome measures in comparison to it. Let us take a hypothetical example of a character (Since the character is not a real one, it is a phantom. Let us give him a generic name- Jack. We may call him Jack Phantom.) who makes a trade-off of a certain units of currency (Let us assume 100 UCs) in any venture and would be reasonably satisfied (5 on a scale of 10) if he only got his investment back. Let us also assume that 100 UCs is not his life's savings, because Jack would be a real bad investor if he invested all his savings in a venture where he would be happy if he broke even.
Assuming it is a reasonable amount to him but not too high he might be at level 6 if he made 1% profit and at level 4 if he made 1% of loss. But he would not reach a level 10 if he made 5% profit. That is because happiness on returns is more of a logarithmic scale. He would more likely be at level 7 if he made 10% profit and at level 8 if he got back double of what he invested. Also, for the sake of symmetry,  he would be at level 3 at 10% loss and at level 2 at a 100% loss (all his investment down the drain). Bad?
It could be worse. If his investment is deemed illegal and he is fined much more than what he invested, he could go down even lower. The same could be the case if the investment seems to fe failing and he has to "throw in good money after  bad" in order to reclaim his 100UCs but all the money goes down the drain. However, the investment could also make huge profits. If his 100UCs of shares skyrocket to  five thousand UCs in value(50 times), he could easily be at level 9 or higher.

Let us assume another scenario. Perhaps Jack had invested with expectations for profit. If he would be at level 5 with 1% profit, his happiness levels for different levels of returns would be more like the chart below (forgive me if it looks shabby, it was done in haste with a basic image editor). Even if it grows a hundred times to ten thousand UCs, he would be only at level 8 (where he would be at with 100% profit in the above scenario).

Another scenario might see Mr. Phantom investing his money into a failing business venture of a close friend or family member. He is reasonably satisfied (level 5) if he loses 1-2% of his investment as long as the venture is salvaged. Here, kinship and trust mean more to him in terms of happiness than profit. If he breaks even, he will be closer to level 6 and even a loss of more than 10% will only have him at level 4. Even if he loses all 100 UCs, he will be around level 3.5 (again, see the shabby chart below).

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Of course, the examples and the charts above are oversimplifications. But the trends are there, and the message is clear. Before investing resources (time, money, effort, love) on any venture, it is worthwhile to consider future happiness. It is useful to have modest expectations that you would be happy with. If you invest in something you are initially unhappy about, you are far more likely to hope for higher returns, which, even if reached, will not make you any happier. However, if you do not reach these high expectations, you may end up being miserable.

On the other hand, if you invest in something that makes you happy even if you get back a little less than what you put in, you stand to benefit from extreme happiness if the venture succeeds. It pays to put your money (time/effort/resources) where your heart is.