What Makes You Happy?

The importance of money is a hot topic among economists. But to be a happy spender, you have to find what makes you happy first. [Liberty Through Wealth]( SPONSORED [The "Perfect Stock" Is REAL]( [Stock Movement on Laptop]( And it's only $3... But you've probably never heard of it before... Because it trades under a SECRET name. [Find out more about this "Perfect Stock" right now.]( THE SHORTEST WAY TO A RICH LIFE Can Economists Teach You the Secret of Happiness? Nicholas Vardy | Quantitative Strategist | The Oxford Club [Nicholas Vardy] As practitioners of what philosopher Thomas Carlyle called the "dismal science," economists aren't the folks you'd usually seek out to find the secret of happiness. After all, happiness is normally the province of [philosophers and psychologists](. Still, economists are people too... And the best of them can offer essential advice on how to live a satisfying and happy life. Their ultimate conclusion is that, yes, money matters (although some circles may find this politically incorrect). And it's the key to living a richer life in ways that go far beyond the importance of money itself. Let's start with how economists have thought about money throughout the ages... The Neoclassical View of Happiness Jeremy Bentham - the father of utilitarianism - was one of the first economists to tackle the subject of happiness. He suggested happiness comes from maximizing pleasure and minimizing pain. English economist Alfred Marshall later refined Bentham's theory. He argued that you should consume goods up to the point where the marginal utility or satisfaction is equal to marginal cost. In short, buy stuff until it makes you happy - but no more than that. Refining Marshall's thinking further, Austrian economist Carl Menger highlighted the diminishing marginal utility of extra income. Your first Ferrari will make you very happy. The second one... less so. Menger's recommendation? Rather than [maximizing the number of goods you consume]( you should seek a broader range of life experiences. SPONSORED [Former CBOE trader reveals #1 stock EVERY WEEK!]( [1 Stock Every Week]( His strategy has delivered an 83% win rate, but he guarantees he'll beat that! [Watch how he does it...]( The Secret of "Skilled Consumption" In The Joyless Economy: The Psychology of Human Satisfaction, economist Tibor Scitovsky criticized the implicit link between consumption and happiness. He argued that there are two types of positive experiences. First, there are the hedonistic, short-term pleasures. Think sex, drugs and rock 'n' roll... or a garage full of sports cars. Second, there are the more unpredictable, enriching experiences that provide the potential for [real joy and lasting satisfaction]( in life. He argued that genuine happiness doesn't come from Bentham's simplistic formula of maximizing pleasure and minimizing pain. Instead, happiness comes from taking risks and challenging yourself to try different things. It also comes from learning what he called "skilled consumption"- an appreciation of literature, culture and art. Yes, skilled consumption requires more effort and commitment... But it enables you to experience a real sense of joy rather than fleeting pleasure. Happiness Economics Research from Swiss economist Bruno Frey supports Scitovsky's fundamental insight that consumption is overrated in measuring happiness. In his 2008 book, Happiness: A Revolution in Economics, Frey concluded that most people are irrational in assessing what makes them happy. People both overestimate the utility of higher salaries in the future and underestimate the importance of nonmaterial things like friendship and social interaction. But American economist Betsey Stevenson disagrees. Her research into "happiness economics" shows a strong link between income and happiness. Wealthy countries are the happiest countries. And [the wealthier they are]( the happier they are. So What's the Answer? Here's how I reconcile these contradictory views. Money isn't everything... but how you spend the money you have is. As the title of an article published in the Journal of Consumer Psychology put it, "If Money Doesn't Make You Happy, Then You Probably Aren't Spending It Right." At the same time, how you spend your money depends on your personal needs and preferences. If your goal is to die with the most toys, then you'll side with the theories of Bentham and Marshall. However, if you agree with Scitovsky and Frey and feel that [more money won't make you happier]( you'll focus on developing new interests and having unique experiences. These will provide you with the kind of satisfaction no amount of material wealth can. In short, live your life on your own terms and you'll live a happy one. Good investing, Nicholas [It's As Easy As Printing Money]( [Click here]( to watch Nicholas' latest video update. For the latest news from Nicholas, connect on [Facebook]( and [Twitter](. 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