The Art and Science of Happiness

Published on December 15, 2010

Of course a raise in pay will make almost anybody happy. But what makes one happier, that salary boost or a simple bonus?

This was the recommendation offered by two executives of family-owned firms who spoke to the student-led Family Enterprise Group on November 10 at Harper Center.

From the perspective of happiness, the bonus is the better bet for good vibes that last longer, according to Christopher Hsee, Theodore O. Yntema Professor of Behavioral Science and Marketing.

“If you ask a typical employee, he or she will tell you they want the salary. But that’s because they don’t understand psychology,” Hsee said. “You should give them the bonus instead. Salary is stable and people adapt to the new salary level quickly. Bonuses are not as easy to adapt to.”

At Raynor, the controlling ownership mantle will pass from Neisewander’s grandfather to him. The middle-market company makes residential and commercial garage doors. Headquartered in Dixon, Illinois, it has dealerships in North America and in 50 countries across the world.

Hsee, who conducts research on the interplay between economics and happiness, spoke November 13 at Gleacher Center as part of the Fred G. Steingraber / A.T. Kearney Speaker Series.

As he called them, Hsee’s Happiness Heuristics, are based on research of many scholars, including his colleague, Richard Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics. Researchers find that people adapt more easily to things that are constant than to things that are variable. That’s why, for instance, a baby’s cries go up and down instead of staying at the same tone. “We can adapt to noise that is constant, as long as it is not too noisy,” Hsee said. “But it is difficult for us to adapt to noise that goes up and down. When a baby cries, (it does so) in order to prevent the parents from adapting to the sound.”

The salary-versus-bonuses debate falls under the notion that variable gains are better than stable gains. Conversely, stable losses are better than variable losses.

Tips for Making Others Happy

News regarding gains should be separated, while news regarding losses should be combined, Hsee advised. For example, someone who must give two pieces of bad news to a spouse should to combine them in a single message and suffer the consequences at once. Conversely, giving two $100 gifts to your spouse on separate days makes good feelings last longer than giving one $200 gift. “But, it only goes so far,” he said. “Don’t give your spouse 200 one-dollar gifts.”

For good things, do not give choice. For bad things, offer some choice. For example, when rewarding employees with a trip to Paris or Hawaii, giving them a choice will cause them to wonder whether they made the best decision. On the other hand, for example, requiring business students to take an ethics course they might dislike will go over better if they have a choice between two options. “Call one ‘Business Ethics’ and the other ‘Corporate Morality,’” Hsee said. “These can be essentially the same course, but with different names and different teachers. And call them electives. Tell new students they only need to take one of them and the students will be happier,” he said. “I’m not saying it’s particularly moral to give people the illusion of choice. But people will be happier about it and may learn more from the course.”

Wanted gifts are better than needed gifts, and memorable gifts are better than usable gifts, he said. Hsee described a person with three options for giving a gift: $100 cash, $100 in Walgreen’s gift certificates, or $100 worth of wine. From an economic perspective, the cash is best because it provides the recipient with the most options, followed next by the Walgreen’s gift certificates. From a happiness perspective, Hsee said, the wine is best. “Give somebody something they like but won’t buy with their own money,” he said.

Sophie Yang, a student in the Evening MBA Program, said she Hsee’s speech changed her perspective. “I thought for good things you would rather have options,” Yang said. “My thought was different from his interpretation.” She also appreciated the practicality of his advice. “He used a lot of real examples that you can use in your personal life and a professional setting,” she said.

—Patrick Ferrell