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Present Value of Happiness

August 2012

Disclaimer: This is totally amature thoughts of a computer science and business administration junior.

In this post I will try to modelize your action taking mechanism using economic terms. I will start by giving a very simple real world example and describing it peice by peice to derrive final formula.

Let’s say you have a midterm next week, basically there are two actions you can take for this situation. First one is procastinating, and the other one is studying without getting distracted.

Which one will you choose? why does one of them sounds like an obvious choose to you? and how will this affect your life? To be able to answer these questions, we first need to understand the differenet consequneces of these 2 reactions/investments.

If you choose to procastinate, let’s call this reaction R1 for given situation, you will be happy H1 untill the time of your midterm. After you take your midterm you will be unhappy UH1 ,because you did not study enough and you know that you will get a bad grade.

On the other hand, if you chose to study, let’s call it reaction R2 for this given situation, you will be very unhappy UH2 during the time you are studying. But after the midterm you will probably P2 get a good grade and be happy H2.

There is also an interest rate of happiness I that decides how much you value your future happiness in todays unit happines I is unique for every person and it is constant for a person. I believe that higher EQ you have lower your I is.

Using these variables for given reactions we can derive a formula for present value of happiness of each reaction option. Then we can conclude the topic by comparing these numbers.

PV of NH1 = H1 - (UH1 / I) 
PV of NH2 = (P2 * H2 / I) - UH2  

If NH1 > NH2 that means you preffer short-term happiness to long-term happiness, if NH2 > NH1 vica versa. If NH1 = NH2 you are indifferent between these two reactions.

Now, we know the results of these reactions, so why do we always tend to choose one of them? Actually answer is really simple. Most of us make our decisions based on our emotions. That means present happiness is more valualbe then future happiness.

That means there are 2 reasons for not being able to achive your goals. One of them is P2 being too low, that means you don’t believe that you will achieve you goal no matter how much you work. Second possible reason is that even if you know that you will achive your goal, it is very hard to giving up your current happiness to get future happiness. That means you have high I. If that is the reason of your reaction this is really bad, because that will make very hard to focus on your long-term goals.

Application: Losing Weight

Reaction 1, Working out:

Reaction 2, Living the same daily routine:

My I is too high. That means I am not successfull at long-term goals.

Find the cause and fake it

There will always be two contradictory actions you can take for any given goal. One of them will always be ‘easy to choose’ option and the other one will be harder to choose.

Try to understand why you feel like one of them is easier. Find the variable which causes you to take that action. Try to fake that variable to change the result of the formula.

For example, these are my solutions to fake high I.