Monks, Not McMansions, May Hold the Key to Happiness

By Katherine Salant
Saturday, February 10, 2007

Most people think economists study money.

In fact, economists use various analytic tools to predict behavior. True, the majority of economists' predictions deal with financial matters. When economists talk about new houses, for example, their focus is invariably on the factors that determine prices, such as mortgage interest rates.

But some economists have gone in a different direction. Rather than study dollars and cents, they have used the tools of their discipline to explain other phenomena, such as why people make certain choices.

In the past, economists assumed that an individual's choices were always guided by rational self-interest. Today they recognize that human foibles, biases and our hunter-gatherer origins can often be critical factors.

University of Chicago economists Luis Rayo and Gary Becker, a Nobel laureate, have carried this approach one step further and used economics tools to predict which choices make people happy. Their research is based in part on study of recent developments in psychology, biology, evolution and neuroscience, including brain scans.

In a recent interview, Rayo discussed their research on happiness as it applies to the purchase of a new house, an enterprise that most find is fraught with emotion.

Before you fall off your chair guffawing, insisting that you know happiness when you see it and that some economist couldn't possibly say anything helpful, listen up. You're likely to find that much of Rayo and Becker's research resonates with your own experience.

Rayo began our conversation on a philosophical note. "What is happiness, exactly? Much of what we call 'happiness' is relative and based on comparison," he said. "We are always comparing what we have to something else. But, we're not anticipating that no matter what we have we will always be comparing it to something else. In fact, we're not even aware that we are doing this."

The choices that make people happy are all over the map, but when you examine the data carefully, similar patterns emerge, Rayo said. In that respect, buying a new house is not so different from buying a car or choosing a restaurant.

When you start to think about buying a new and bigger house, your initial comparison and reference point is size, Rayo said. When you start to look at the big, new houses that are for sale, however, you discover that size is only one of many comparisons. Size, price, location and floor plans soon loom large and become new reference points. Rayo characterized them as "moving targets, which constantly change."

Eventually, you pick a builder and a model, build and move in. The change is dramatic. Nonetheless, you quickly become accustomed to your new surroundings. These become your new benchmark against which you now make new comparisons, such as how your house stacks up against the others in your neighborhood or what you could have done with the money instead.

You start shopping for furniture to put in those empty rooms in your bigger house. At the furniture store, you find they have 20 oversize sofas on the floor -- more comparisons! You select several pieces for your family room and quickly move on to considering an outdoor deck for summer. You keep expecting that you will finally become sated with all things related to the new house, but the considerations are endless. The deck project leads to discussions about possible decking materials, as well as outdoor grills. . . .

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