Evolutionary Efficiency and Happiness

Abstract

We model happiness as a measurement tool used to rank alternative actions. Evolution favors a happiness function that measures the individual’s success in relative terms. The optimal function is based on a time‐varying reference point—or performance benchmark—that is updated over time in a statistically optimal way in order to match the individual’s potential. Habits and peer comparisons arise as special cases of such an updating process. This updating also results in a volatile level of happiness that continuously reverts to its long‐term mean. Throughout, we draw a parallel with a problem of optimal incentives, which allows us to apply statistical insights from agency theory to the study of happiness.