In explaining individual happiness, economists have largely emphasized the hedonic, utilitarian, material, and tangible aspects of a person’s life.  Another important explanation for individual happiness which owes much to Aristotle’s thought emphasizes the eudaimonic, the realization of a person’s inherent qualities, one’s true potential.  Given economists’ orientation and theoretical framework, it is not surprising that they have largely ignored the eudaimonic aspect.  On the other hand, many of the psychologists and philosophers who have developed the eudaimonic approach have given short shrift to the hedonic and utilitarian aspects.  An interesting and pertinent development is very recent research which draws on both psychology and Buddhist thought in order to understand individual happiness.  The purpose of this paper is to contribute to an integrated understanding of happiness, an integration understandable not only to economists but also to psychologists and philosophers, among others.  What this paper seeks to explain is the enduring or long lasting part of happiness, not the momentary or transient part.

            According to the hedonic approach, happiness is a product of an individual’s experience.  It relates to the relative amount of pleasure versus pain a person experiences. The eudaimonic aspect of happiness comes from acting in accord with or realizing one’s true self (daimon).  Aristotle believed that eudaimonic happiness is the highest of all goods achievable by action and that it is very different from satisfying appetites.  In Ricard’s view, this happiness involves a “deep sense of flourishing that arises from an exceptionally healthy mind.”                     

            Those writers who have emphasized the eudaimonic aspect of happiness (Aristotle included) have generally considered hedonic happiness to be not only a vulgar ideal but one that lacks validity.  But even Aristotle recognized that people need adequate provisioning, at least a reasonable standard of living.  There is a definite element of truth in the hedonic approach.  Therefore, this hedonic truth needs to be integrated appropriately with the eudaimonic truth in order to understand the whole truth about happiness.  The starting point for this attempted integration is the happiness formula.

            According to Seligman, the happiness formula is:

H = S + C + V

where H is an individual’s enduring happiness, S is an individual’s set point or range, C is an individual’s life circumstances, factors largely outside one’s control, and V represents factors under one’s voluntary control.  A person’s set point is the relatively fixed level of one’s happiness that research indicates is attributable to the personality traits or dispositions that one inherits from our parents. 

            Alan Wallace is one of several recent writers who have drawn on Buddhist thinking regarding happiness and have attempted to integrate these perspectives with psychology and other disciplines.  According to Buddhism,  as interpreted by Wallace and Shapiro, true human well-being or happiness requires living wholesomely, cultivating mental balance, developing wisdom and compassion, freeing one’s mind of afflictive tendencies, and developing creativity.  On the other hand, unhappiness that comes about from mental suffering is due in large part to a variety of mental imbalances.  Happiness, therefore, requires one to achieve four kinds of mental balance:  conative, attentional, cognitive, and affective.  According to Buddhism, ordinary people typically suffer from a lack of balance (or the presence of imbalance) in all four types of mental balance, and thus experience some degree of unhappiness.       

            In order to integrate the hedonic and eudaimonic approaches to understanding happiness, it is necessary to modify the happiness formula and interpret it somewhat differently than Seligman and other psychologists have,.  First, to connect the happiness formula to economic thought, it should be noted that the right-hand-side of the equation consists of stocks, accumulated amounts that exist at one point in time.  Similar to most economic stocks, the stocks in the happiness formula give rise to corresponding flows, in this instance flows associated with enduring happiness.   From the standpoint of theory, happiness is the dependent variable and the right-hand-side variables in the formula are the independent variables explaining happiness.

            The modified happiness formula is:

H = S + UC + E

where UC is the contribution to an individual’s happiness made by the relatively utilitarian aspects of an individual’s circumstances.  E is the contribution to an individual’s happiness made by the eudaimonic aspect of life; it roughly reflects an individual’s degree of realization of his or her true self.  The UC and E variables reflect how much the individual (or the individual’s community and society) has invested in tangible assets and intangible capital that contribute to his/her happiness.

            UC, the utilitarian contribution to happiness, is composed of five parts:  1) a tangible part relating to an individual’s physical capital (for personal use) and consumer durables, 2) an intangible part relating to one’s consumption capital or functionings, 3) a part relating to the tangible and intangible wealth that enables an individual possessing it to earn a flow of income, 4) a part related to how well the economy in which the person lives and works functions, and 5) a part related to the status of the individual.  E, the eudaimonic contribution to happiness, is composed of two parts:  1) the part reflecting equanimity, particularly the ability of a person to avoid suffering even if one’s experience is negative and 2) the part reflecting the degree of an individual’s attainment or realization of his/her potential (high life satisfaction and flourishing).

            The later part of the paper illustrates the value of the modified happiness formula by applying it to several recognizable situations.  Finally, several important implications of the modified happiness formula are developed and illustrated.  One such implication relates to how individuals can improve their enduring happiness levels by making appropriate investments in intangible capital.