Don't move along your utility curve. Shift it.

Mathematicians like to quantify. Ask a mathematician what happiness is and he - the one who has been seriously mathematicized - will probably reply that happiness is a mathematical function. The "happiness function" of a person takes as variables the income of the person, the number of houses or cars that the person has as well as all other factors that the person considers will influence his sense of happiness and returns a real value indicative of his level of happiness. In other words, theoretically, happiness can be quantify. The academic world knows this function as the utility function.

Daniel Bernoulli was the first person who introduced the concept of utilities (in 1738). Before him, people tended to use expected gain as a basis in their decision-making. The higher the expected gain of a decision, the more likely the person will choose the decision. Bernoulli found this concept flawed as the amount of satisfaction that an expected gain generates for a person differs from one person to another. I would be extremely happy if I strike 4d. Bill Gates might not even blink an eye if he did. This important idea in utility theory is best summed up by Bernoulli himself: "The utility resulting from any small increase in wealth will be inversely proportionate to the quantity of goods previously possessed". To illustrate this idea, mathematicians represent the utility function as a concave function with respect to wealth.
















Fig 1. An example of a concave utility curve.


The utility theory is fundamental in economics. Economists assume that the utility function of an individual (this can be extended to that of society) is an increasing function (albeit concave) of wealth. The more wealth a person possesses, the happier he is. But if he is already very rich, a small increase in wealth will not make him as happy as when he was poor (if he was ever poor). Based on this assumption, which I would say is pretty much valid, economists set forth to analyze and study how the world can produce more goods, generate more wealth and thus, and I emphasize that this is their primary objective, make everyone happier. Many economic theories have been developed since Adam Smith's "Wealth of Nation" was first published in 1776 and among them, one which has been rather influential is the model of economic growth developed by Robert Solow in the 1950s, which demonstrated the importance of technological progress in sustaining economic growth. The faster the rate of technological progress, the greater the growth in economy. Solow's model is probably the chief reason why the world is so obsessed in developing technology today.

The aim of increasing the happiness of people has gradually been lost on most economists as they become obsessed only in studying how economic growth can be achieved and sustained. The original objective of the economists was to increase the utilities of all individuals by moving horizontally across their utility curves, that is by increasing their wealth. However, the utility functions, based on which utility curves are drawn, are not simple functions of wealth, the single factor that economists are concerned with. The utility function of an individual probably varies with time, and is likely to be dependent on his/her personality and the wealth of other individuals among many other factors. For instance, a person who is ambitious might need to earn $10000 a month to be as happy as a person who, though only earns $2000 a month, is less ambitious. A person who owns a 5-room HDB flat today might only be as happy as a person who owns a 3-room HDB flat 20 years ago because most people have become wealthier and thus our expectations have changed.

That is to say, by trying to generate more wealth in the world, economists are actually shifting down the utility curves of each individual such that a person needs more wealth to be as happy as he was, say 20 years ago.















Fig 2. Our current utility curve is probably lower than our past utility curve. We now require more wealth to be as happy as we were in the past.


If we want to be happier by becoming richer, we do not only need to be richer, but we should strive to get richer faster by accumulating wealth at a rate faster than that accumulated by society. In this way, we might be able to increase our utilities (or happiness) even though our utility curves have shifted downwards due to our higher expectations of wealth.

The problem is that you and I will not be the only one trying to get rich faster. Happiness is sought by everyone. As such, we will both get caught in the rat race, the downward shift in our utility curves are accelerated and by the time our wealth is increased, we will not necessary be happier. This is why some millionaires tell us that given a choice, they would not be so obsessed with earning money in the past because they realized, after money is already in their pockets, that they could have been happier with less money.

Instead of being obsessed in striving to move horizontally across our current utility curves, which is what economists have been advocating over the last 200 hundred years or so, we should figure out how to shift our utility curves vertically upwards. A successful vertical upward shift in our utility curves will make us happier without a change in our wealth.
















Fig 3. Upward shift in the utility curve leads to higher utility at the same wealth level.


However, most of us do not even know our own utility functions. We do not know what we want in life and we do not really know what make us happy. How then can we shift our utility curves?

All that we know (or we assume to be the case) is that we will be happier with more money. This knowledge or assumption did not come about by accident. It is because the economists since Adam (Smith, not the Adam who ate the apple) have been propounding the positive relationship between utility and wealth. Today, it is ingrained in some people that more money equates to greater happiness. Which might be just the case for them. For the rest of us who remain skeptical, we also work to earn money. We do so because although we are uncertain of our utility function, we know for certain that we need money to fill our stomachs. And there is nothing much else to occupy our time except to work.

Maybe what we really need in order to be happy is to first identify our utility functions. Maybe what we really need is someone to lead us to find out what we want in life.

I'm hoping that someone is not a priest.



Aim of post: To influence you not to work too hard to earn money, so that my utility curve will shift downward at a slower rate, so that I can still earn my money and be happy (=