In this course we will explore one of the most important yet least understood aspects of human nature – what makes us happy. For a long time economists have assumed that happiness cannot be measured. More importantly, they have assumed that happiness need not be measured directly because it can be inferred from the choices that people make which reveal their preferences. This more objective approach to measuring well-being has come to dominate modern (neoclassical) economic theory which assumes that individuals derive happiness only from the consumption of tangible goods and services as well as leisure. Thus, measures of material standards of living such as gross domestic product (GDP), or household and individual income, have come to dominate national debates about social and economic progress despite of their limitations.

This objectivist approach to measuring well-being, however, has been challenged in recent years as research in psychology and economics has pointed out that there are large discrepancies between how people feel, what they value and how they actually behave in real life. People have “bounded rationality,” do not always act in a way consistent with maximizing happiness, and their judgment is subject to many systematic mistakes. So in the first part of this course we will explore some of these anomalies in decision making and challenge some of the assumptions that economists make. We will ask more fundamental questions: What is happiness, what is its function, how does it relate to our well-being, can we measure it in a reliable and meaningful way, and should we use as a gauge for prosperity.

We will then look at a paradox: most people want more income and strive for it. Yet as standards of living have substantially improved in Western societies over the last fifty years, happiness levels have not changed. What socio-economic factors explain this trend? Why are some nations happier than others? What is the role of other macroeconomic factors such as unemployment, inflation, income inequality, and the quality of governance in determining our happiness? People in ex-communist countries, for example, report significantly lower levels of subjective well-being than people in the more economically free Western societies. What major happiness trade-offs are societies facing in terms of macroeconomic policy?

While we can do little to affect the socio-economic climate that surrounds us, there are plenty of other decisions that are in our control – what kind of careers to pursue, whether to have kids, and, most importantly, how to spend our hard earned dollars. Can a bottle of 1947 Chateau Cheval Blanc make you happier than simply smiling at a stranger? We will next examine how variety of microeconomic factors such as money, work, leisure, reciprocity, gratitude, love, drugs, and social relationships affect our happiness. We will also look at the effect of consumerism on our minds.

Although the emphasis in the course will be to gain a better understanding of the determinants of happiness and their implication for economic theory and public policy, a part of the course is also dedicated to provide students with the tools of positive psychology that can help them live a happier life. Twentieth century psychology has largely focused on treating mental illness and preventing negative emotions and behaviors (e.g., depression, suicide, etc.) The new field of positive psychology, however, is the study of positive emotions – optimism, hope, and gratitude – and the character virtues and strengths that can help us achieve “authentic” happiness even in the face of adversity.

Finally, I can’t promise you that at the end of the semester you will learn how to be happier. As Oscar Wilde once said “education is an admirable thing, but it is worth to remember from time to time that nothing that is worth knowing can be taught.” Happiness is one of those things – identifying, building, and enhancing the virtues and strengths of your character that will lead to a happy life is something that will inevitably happen outside of the classroom. This does not mean that we have to discard the study of happiness economics. On the contrary, happiness economics can provide us with valuable insights about how people make choices and how these choices affect our ordinary lives. It can also challenge us to examine the meaning of social progress and critically evaluate the values and beliefs that we hold the closest to our hearts. What I can promise you, then, is that if you are motivated and spend the necessary time to explore new ideas and ways of thinking, you will make one more step towards an educated and flourishing life—and this is something valuable in itself. After all, you will have to make all kinds of choices—both for yourself and for your community—and this is something you can do either intelligently or not.