Optimizing Happiness

  • Manel Baucells
  • Rakesh K. Sarin
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 148)


We consider a resource allocation problem in which time is the principal resource. Utility is derived from time-consuming leisure activities, as well as from consumption. To acquire consumption, time needs to be allocated to income generating activities (i.e., work). Leisure (e.g., social relationships, family, and rest) is considered a basic good, and its utility is evaluated using the Discounted Utility Model. Consumption is adaptive and its utility is evaluated using a reference-dependent model. Key empirical findings in the happiness literature can be explained by our time allocation model. Further, we examine the impact of projection bias on time allocation between work and leisure. Projection bias causes individuals to overrate the utility derived from income; consequently, individuals may allocate more than the optimal time to work. This misallocation may produce a scenario in which a higher wage rate results in a lower total utility.


Life Satisfaction Wage Rate Reference Level Social Comparison Adaptation Level 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Abdellaoui M, Bleichrodt H, Paraschiv C (2007) Loss aversion under prospect theory: A parameter-free measurement. Management Science 53:1659–1674CrossRefGoogle Scholar
  2. 2.
    Aguiar M, Hurst E (2006) Measuring trends in leisure: The allocation of time over five decades. NBER Working paper n.12082Google Scholar
  3. 3.
    Baucells M, Sarin R (2006) Predicting utility under satiation and habituation. IESE Business School.
  4. 4.
    Baucells M, Sarin R (2007) Satiation in discounted utility. Operations Research 55(1): 170–181CrossRefGoogle Scholar
  5. 5.
    Bentham J (1789) Principles of morals and legislation. Clarendon Press, OxfordGoogle Scholar
  6. 6.
    Brickman P, Coates D, Janoff-Bullman R (1978) Lottery winners and accident victims: Is happiness relative? Journal of Personality and Social Psychology 36:917–927CrossRefGoogle Scholar
  7. 7.
    Cavalli-Sforza L, Cavalli-Sforza F (1998) La science du bonheur. Odile Jacob, ParisGoogle Scholar
  8. 8.
    Clark AE (1996) Job satisfaction in Britain. British Journal of Industrial Relations 34: 189–217CrossRefGoogle Scholar
  9. 9.
    Davidson R, Jackson D, Kalin N (2000) Emotion, plasticity, context, and regulation: Perspectives from affective neuroscience. Psychological Bulletin 126:890–906CrossRefGoogle Scholar
  10. 10.
    Davidson RJ, Harrington A (2001) Visions of compassion: Western scientists and Tibetan Buddhists examine human nature. Oxford University Press, OxfordGoogle Scholar
  11. 11.
    Davidson RJ, Kabat-Zinn J, Schumacher J, Rosenkranz M, Muller D, Santorelli SF, Urbanowski F, Harrington A, Bonus K, Sheridan JF (2003) Alterations in brain and immune function produced by mindfulness meditation. Psychosomatic Medicine 65:564–570CrossRefGoogle Scholar
  12. 12.
    Davis JA, Smith TW, Marsden PV (2001) General social surveys, 1972–2000, Cumulative codebook. Roper Center for Public Opinion Research, Storrs, CTGoogle Scholar
  13. 13.
    Diener E, Tov W (2005) National subjective well-being indices: An assessment. In: Land KC (ed) Encyclopedia of social indicators and quality-of-life studies. Springer, New YorkGoogle Scholar
  14. 14.
    diTella R, MacCulloch R (2006) Some uses of happiness data in economics. Journal of Economic Perspective 20(1):25–46CrossRefGoogle Scholar
  15. 15.
    Easterlin RA (2003) Explaining happiness. Proceedings National Academy Sciences 100(19):11176–11186CrossRefGoogle Scholar
  16. 16.
    Easterlin RA (1995) Will raising the incomes of all increase the happiness of all? Journal of Economic Behavior Organization 27:35–48CrossRefGoogle Scholar
  17. 17.
    Frank RH (1985) Choosing the right pond. Oxford University Press, New YorkGoogle Scholar
  18. 18.
    Frank RH (1997) The frame of reference as a public good. The Economic Journal 107(445):1832–1847CrossRefGoogle Scholar
  19. 19.
    Frank (1999) Luxury fever. Princeton University Press, PrincetonGoogle Scholar
  20. 20.
    Frederick S, Loewenstein G (1999) Hedonic adaptation. In; Kahneman D, Diener E, Schwarz N (eds) Well being: The foundation of hedonic psychology. Russell Sage, New York, 302–329Google Scholar
  21. 21.
    Frey BS, Stutzer A (2002) What can economists learn from happiness research. Journal of Economic Literature 40(2):402–435CrossRefGoogle Scholar
  22. 22.
    Gilbert D (2006) Stumbling on happiness. Alfred A. Knopf, New YorkGoogle Scholar
  23. 23.
    Gross DR (1984) Time allocation: A tool for the study of cultural behavior. Annual Review of Anthropology 13:519–559CrossRefGoogle Scholar
  24. 24.
    Inglehart R, et al (2000) World values surveys and European values surveys, 1981–84, 1990–93, 1995–97. Institute for Social Research, Ann Arbor, MIGoogle Scholar
  25. 25.
    Kahneman D, Krueger AB (2006) Developments in the measurement of subjective well-being. Journal of Economic Perspectives 20(1):3–24CrossRefGoogle Scholar
  26. 26.
    Kahneman D, Krueger AB, Schkade DA, Schwarz N, Stone AA (2006) Would you be happier if you were richer? A focusing illusion. Science 312(30):1776–1780Google Scholar
  27. 27.
    Kahneman D, Miller DT (1986) Norm theory: Comparing reality to its alternatives. Psychological Review 93(2):136–153CrossRefGoogle Scholar
  28. 28.
    Kahneman D, Tversky A (1979) Prospect theory: An analysis of decision under risk. Econometrica 47(2):263–292CrossRefGoogle Scholar
  29. 29.
    Kahneman D, Wakker PP, Sarin RK (1997) Back to Bentham? Explorations of experienced utility. Quarterly Journal of Economics 112(2):375–405CrossRefGoogle Scholar
  30. 30.
    Klein S (2006) The science of happiness: How our brains make us happy and what we can do to get happier. Da Capo Press, Tra edition, New YorkGoogle Scholar
  31. 31.
    Lama Dalai, Cutler HC (1998) The art of happiness. Riverhead Hardcover, New YorkGoogle Scholar
  32. 32.
    Layard R (2005) Happiness: Lessons from a new science. The Penguin Press, LondonGoogle Scholar
  33. 33.
    Lepper HS (1998) Use of other-reports to validate subjective well-being measures. Social Indicators Research 44:367–379CrossRefGoogle Scholar
  34. 34.
    Loewenstein G, Schkade DA (1999) Wouldn’t it be nice: Predicting future feelings. In: Kahneman D, Diener E, Schwarz N (eds) Well being: The foundation of hedonic psychology. Russell Sage, New York, 85–108Google Scholar
  35. 35.
    Loewenstein G, O’Donoghue T, Rabin M (2003a) Projection bias in predicting future utility. Quarterly Journal of Economics 118(3):1209–1248CrossRefGoogle Scholar
  36. 36.
    Loewenstein G, Read D, Baumeister R (2003b) Decision and time. Russell Sage Foundation, New YorkGoogle Scholar
  37. 37.
    McGuire M, Raleigh M, Brammer G (1982) Sociopharmacology. Annual Review of Pharmacological Toxicology 22:643–661CrossRefGoogle Scholar
  38. 38.
    McMahon DM (2006) Happiness: A history. Grove Press, New YorkGoogle Scholar
  39. 39.
    Medvec V, Madey S, Gilovich T (1995) When less is more: Counterfactual thinking and satisfaction among Olympic medalists. Journal of Personality and Social Psychology 69: 603–610CrossRefGoogle Scholar
  40. 40.
    Nisbett RE, Kanouse DE (1968) Obesity, hunger, and supermarket shopping behavior. Proc Annual Convention American Psychological Association 3:683–684Google Scholar
  41. 41.
    Pavot W, Diener E (1993) The affective and cognitive cortex of self-reported measures of subjective well-being. Social Indicators Research 28(1):1–20CrossRefGoogle Scholar
  42. 42.
    Pollak R (1970) Habit formation and dynamic demand functions. Journal of Political Economy 78:745–763CrossRefGoogle Scholar
  43. 43.
    Putnam RD (2000) Bowling alone: The collapse and revival of American community. Simon and Schuster, New YorkGoogle Scholar
  44. 44.
    Russell B (1930) The conquest of happiness. Liveright, New YorkGoogle Scholar
  45. 45.
    Ryder HE, Heal GM (1973) Optimal growth with intertemporally dependent preferences. The Review of Economic Studies 40:1–33CrossRefGoogle Scholar
  46. 46.
    Sahlins M (1968) Notes on the original affluent society. In: Lee R, Devore I (eds) Man the hunter. Aldine, Chicago, ILGoogle Scholar
  47. 47.
    Sapolsky RM, Alberts SC, Altmann J (1997) Hyper cortisolism associated with social isolation among wild baboons. Archives of General Psychiatry 54:1137–1143Google Scholar
  48. 48.
    Schkade DA, Kahneman D (1998) Does living in California make people happy? A focusing illusion in judgments of life satisfaction. Psychological Science 9(5):340–346CrossRefGoogle Scholar
  49. 49.
    Schor J (1992) The overworked American: The unexpected decline of leisure. Basic Books, New YorkGoogle Scholar
  50. 50.
    Smith A (1759) The theory of moral sentiments. Oxford University Press, Oxford, UKGoogle Scholar
  51. 51.
    Smith A (1776) The wealth of nations. Reprinted by The University of Chicago Press, 1981, ChicagoGoogle Scholar
  52. 52.
    Smith DM, Langa KM, Kabeto MV, Ubel PA (2005) Health, wealth, and happiness. Psychological Science 16(9):663–666CrossRefGoogle Scholar
  53. 53.
    Solnick SJ, Hemenway D (1998) Is more always better? A survey on positional concerns. Journal of Economic Behavior & Organization 37:373–383CrossRefGoogle Scholar
  54. 54.
    Stutzer A (2003) The role of income aspirations in individual happiness. Journal of Economic Behavior & Organization 54:89–109CrossRefGoogle Scholar
  55. 55.
    Tocqueville A (1998) Democracy in America. Harper Perennial, New YorkGoogle Scholar
  56. 56.
    Tversky A, Kaneman D (1991) Loss aversion in riskless choice: A reference-dependent model. Quarterly Journal of Economics 106(4):1039–1061CrossRefGoogle Scholar
  57. 57.
    van Praag, BMS, Frijters P (1999) The measurement of welfare and well-being: The Leyden approach. In: Kahneman D, Diener E, Schwarz N (eds) Well being: The foundation of hedonic psychology. Russell Sage, New York, 413–433Google Scholar
  58. 58.
    Veblen T (1899) The theory of the leisure class; an economic study in the evolution of institutions. Reprint by The Macmillan Company, New YorkGoogle Scholar
  59. 59.
    Wathieu L (1997) Habits and the anomalies in intertemporal choice. Management Science 43(11):1552–1563CrossRefGoogle Scholar
  60. 60.
    Wathieu L (2004) Consumer habituation. Management Science 50(5):587–596CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  • Manel Baucells
    • 1
  • Rakesh K. Sarin
    • 2
  1. 1.Department of Managerial Decision SciencesIESE Business SchoolBarcelonaSpain
  2. 2.Decisions, Operations & Technology Management Area, UCLA Anderson School of Management, University of CaliforniaLos AngelesUSA

Personalised recommendations