Characterising the choice environment: feeling constrained as an impediment to happiness

Abstract

We posit that happiness reflects not only utility from realised choices, but also discontentment from having to forego alternatives. Under this view, utility and happiness maximisation yield the same optimal choices in a variety of standard economic decision problems, but utility and happiness can move in opposite directions when the choice set changes. Our theory: 1) respects economists’ and psychologists’ notions of utility and happiness; 2) captures why the two concepts are often confused; 3) explains the Easterlin Paradox without resorting to systematically poor choices; 4) offers a novel interpretation of previous empirical findings in which individuals’ choices go hand-in-hand with lower happiness.