Happiness, Rationality, and Efficiency

They are 3 of the most studied subjects known to grad students and undergrads alike. Happiness is a cornerstone of psychology and philosophy. We know from history that kingdoms have been conquered, and constitutions written, by the pursuit of it. Efficiency, thinking back to dreaded homework sets, is studied most in physics and engineering, as we conserve energy, fight gravity, and dream of building the Carnot engine. It is also a bedrock of economics - the state which we try to achieve in designing the market-clearing equilibrium, so that no supply is wasted and no demand left unheard. And rationality. Well, if economics is an old table, then rationality is the leg still holding it up today. Rational expectations remains the prevailing theory for many economists, but you can trace its historical roots all the way back to the invisible hand. Rational people making rational decisions, when put together, created Adam Smith's idea of a self-sustaining economy.

So here's a thought, what do these 3 things have in common?

Other than the fact that so many people have spent so much time studying them, often in the hours between John Stewart and Good Morning America, what unique characteristic ties them together?

My answer is that they are all things which human beings aspire to reach, but, for our own good, never quite do.

Let's start with efficiency. Why do we never reach it? That's the easy question. Physics teachers told us so. 100% efficiency is not possible. In that narrow scope, they meant we never have a tabletop without friction, we never throw frisbees without air resistance, and reactions never conserve all energy. But what about a broader definition of efficiency? Has there been an economy that produced just as many shoes as the number of people who wanted to buy shoes, so that there were both no one remained who needed shoes and no shoes left on the shelf? I don't know, but probably not. Has there been a person who consumed just as many calories as she burned, without wasting an ounce of the world's food supply? Equally, has there been a society that took from the environment just as much as it needed, without wasting? Probably not, but history tells us there were people who at least strived for that (hint: soverign people). Has there been a student who was perfectly efficient and who never procrastinated? Maybe. Certainly not me. So both physically and socially, efficiency is impossible to achieve. Yet, we would not necessarily want to achieve it. Economically, the whole spirit of entrepreneurism and business is founded on the notion that we can be more efficient. Indeed, business schools teach it to us. There's always a way for us to become more efficient in whatever it is we do. There's a more efficient way to manage your time, a more efficient way to run a business, a more efficient way to cut costs. Think about it, human beings would be rendered obsolete if we ever reached full efficiency as an economy - robots would be doing all the work, even customer service! (Even though they could probably do it better.)

It's not the case that human beings are never rational, but it's that we are never fully rational at all times. It usually pays to be rational: buy what you can afford, study before a test, take the best job offer. Conversely, it hurts to be irrational: throwing away your resources, burning your bridges. Rationality is a part of our every decision. And we strive for it. Rationality has our payoff in mind - rational decisions tend to bring about positive outcomes. We teach rational behavior to our kids. We hear about it at church. What's rational to do becomes what we "should" do. But we never fully get there. So why is it beneficial that we fall short? Well, sometimes we design our own demise: clever advertising brings out the best impulsive, irrational buyers in us. Other times, what's strictly rational doesn't adhere to our higher standards. Imagine, for example, you are given $100 and asked to keep a part of it (however large a sum you wish) and give the rest to a stranger. Studies have shown that most people cut the pie 50/50, or 60/40, something pretty close to even. The higher moral standard of equality dominates the more economically rational option to take it all. This leads to something really interesting - altruism. In classical economic theory, altruism is irrational; to sacrifice your own wellbeing for that of another is to rob your own utility maximization. Biology concurs. If you're a shark, and you get really hungry, not eating your babies hurts your survival. But in the end, we do it. Parents are altruistic. Neighbors are altruistic. At times, we are even altruistic towards our rivals. And we are better off as a world with altruism than a world without. For people in public health, we are thankful that rationality is not always the chosen path.

Why then, can we be better off not being as happy as we can be? Of the 3, happiness seems to follow most closely to the more-is-better doctrine. Can happiness be captured on a curve of diminishing returns as well? This kind of gets into a philosophical argument of sorts, but consider the opening sentence of Leo Tolstoy's Anna Karenina: "All happy families are alike; every unhappy family is unhappy in its own way." So there's one answer. Unhappiness makes us unique! Who wouldn't want a world of unique individuals? A serious, and perhaps more correct, answer is that not achieving 100% happiness makes us work harder to achieve more of it, and makes us appreciate the things in life we do have that make us happy. Both things, one could say, are more preferable than a society of giggling folks without a worry on their minds. So yes, at an extreme, happiness does have diminishing returns. There's evidence from medicine, called the disability paradox. Why do patients suffering from life-threatening terminal illnesses report being happier than patients fighting, let's say, the annoying common cold? Does the elusive goal of complete happiness empower us to reach for it even in the face of a chronic illness, bringing quality and meaning to our final days? Maybe, just maybe our inability to be fully happy gives us the edge to get up every morning and go find more of it in everything we do.

The ideal society is one in which things work pretty efficiently, but not entirely so, people make rational decisions, but will still grab that new overpriced toy, and everybody is pretty happy, but unhappy enough about something to go fix it.