Introduction

Life well-being, the center of this book, is composed of three parts: experienced, evaluative, and meaning, described by psychologists Andrew Steptoe and Arthur Stone, and Nobel Laureate economist Angus Deaton.1

Experienced well-being, also known as emotional or hedonic well-being, refers to our momentary emotions such as happiness, sadness, and anger. Evaluative well-being refers to our satisfaction with our lives. Meaning well-being, also known as eudemonic well-being, refers to our assessment of the meaning and purpose of our lives. Life well-being, as used in this book, is about all the parts of well-being. In what follows, I use well-being as a shorthand for life well-being.

Steptoe and coauthors measured experienced well-being by asking people about their emotional experiences, with adjectives such as happy, sad, and angry. They noted that negative adjectives are not simply opposites of positive adjectives. Instead, each kind contains unique information about a person's emotional state. Therefore, experienced well-being is composed of two dimensions, positive and negative, that point in imperfectly opposite directions.

The researchers measured evaluative well-being by Cantril's Self-Anchoring Scale, also known as Cantril's ladder. It asks: “Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally stand at this time? On which step do you think you will stand about five years from now?”

Meaning is an orientation to something bigger than oneself. People enjoying high-meaning well-being agree with statements such as “I understand my life's meaning,” “I have discovered a satisfying life purpose,” and “I have something to contribute to society.”

The three parts of well-being are distinct by cognitive reflection. Experienced well-being can be reported directly, requiring no cognitive reflection, whereas evaluative and meaning well-being require cognitive reflection, including aggregation over time and comparison with self-selected standards such as our lives today compared to our lives a decade ago, our lives compared to the lives of others, and our lives compared to our aspired lives.

Differences between experienced and evaluative well-being are evident in Finnish people's reactions to the top place of their country in the World Happiness Report, six years in a row.

Finns acknowledge their high evaluative well-being, praising their country's strong social safety net. A Finn who has also lived in the United States noted that Finns, unlike Americans, have no big worries in life. “I am retired, getting a pension which is about 70% of my last salary, and I'll get it till I die…. I still pay relatively high taxes, but all education is free also through college…. I have had two hip replacement operations with hospital stay, total cost to me about $600.”2

Yet Finns also acknowledged their low experienced well-being, characterizing themselves as quite gloomy, a little moody, or not given to unnecessary smiling. Indeed, when a leaked video of Sanna Marin, Finland's 36-year-old leader at the time, showed her dancing energetically and singing with friends, some Finns suspected that she was high on drugs.3

Julia Wilson-Hangasmaa, a 59-year-old woman, immigrated to Finland from Zimbabwe three decades before. Zimbabwe ranks 144th, in the World Happiness Survey, better only than Lebanon and Afghanistan. Wilson-Hangasmaa appreciates the freedom Finland provides all people to pursue their dreams without worrying about meeting basic needs, but when she returns to Zimbabwe, she is struck by people's exuberant joy. “What I miss the most, I realize when I enter Zimbabwe, are the smiles.”4

Differences between meaning well-being and experienced well-being are striking in the experiences of mountain climbers. Economist George Loewenstein described the experience of Maurice Herzog, the first man to climb an 8,000-meter peak. Herzog lost several fingers and parts of his feet to gangrene, surely diminishing his experienced well-being and likely his evaluative well-being, but the ordeal enhanced his meaning well-being. The ordeal, wrote Herzog, “has given me the assurance and serenity of a man who has fulfilled himself. It has given me the rare joy of loving that which I used to despise. A new and splendid life has opened out before me.”5

Some people are willing to trade experienced well-being for meaning well-being. Ample finances provide John Craig the funds for high experienced well-being, including the mansion where he was interviewed by sociologist Michele Lamont. Yet he seeks to enhance his meaning well-being. “To keep the pace up to generate a lot of income gets wearing,” he said. “We live in a high-ticket town. I got caught up in the big house and the high lifestyle…. Now I have become more conscious and aware of what is important to me.” To redefine what is important to him, he is reading The Road Less Traveled by M. Scott Peck, a book aimed at helping readers attain meaning well-being.6

Others trade future evaluative and meaning well-being for present experienced well-being. Many find experienced well-being in smoking, excessive spending, or fleeting relationships, but these often detract from future evaluative and meaning well-being. Fred Jones, an elderly man, never married, had six children by four different women, yet maintained close ties with only one of his children. “I played and played and played until I played out,” he said. “I wasn't smart enough. I thought I was gonna be healthy, happy, and vigorous and everything else for a hundred years at least. Then I got caught—nobody here to take care of me, and it's all my own fault.”7

COVID-19 led some to reconsider their well-being, assigning less weight to day-to-day experienced well-being and more weight to evaluative and meaning well-being. Yet it led others to renewed appreciation of experienced well-being. Dennis Littley, a retired chef, has been eating well at home but looked forward to the simple pleasure of sitting at the patio of his favorite restaurant, drinking a dark beer, and eating “a really, really good cheeseburger,” pleasure made possible now by his COVID-19 vaccination.8

The third generation of behavioral finance

Life well-being is also at the center of the third generation of behavioral finance, a generation preceded by standard finance and the first and second generations of behavioral finance. Standard finance describes people as computer-like “rational,” immune to cognitive errors such as overconfidence and emotional errors such as excessive fear. Rational people aim to increase their wealth and its utilitarian benefits, mostly consumption, and are able to strike it perfectly.

The first generation of behavioral finance described people as bumbling “irrational,” aiming at increasing their wealth, as in standard finance, but hampered from striking it perfectly by cognitive and emotional errors, such as overconfidence or excessive fear.

The second generation of behavioral finance described people as “normal,” people like you and me, neither rational nor irrational. Normal people aim for expressive and emotional benefits in addition to utilitarian ones, and are sometimes willing to sacrifice some wealth and its utilitarian benefits for them.

Utilitarian benefits are the answer to the question: what does something do for me and my pocketbook? Expressive benefits are the answer to the question: what does something say about me to others and myself? Emotional benefits are the answer to the question: how does something make me feel?

Watches offer an example of the three kinds of benefits. Expensive watches diminish well-being by the utilitarian costs of high prices, but enhance it by the expressive benefits of high social status and display of refined tastes, and by the emotional benefits of beauty and pride. Indeed, it is impossible to explain the wide ranges of watch prices, from $10 to more than $1 million, without considering their expressive and emotional benefits.

The third generation of behavioral finance also describes people as “normal,” but is explicit in describing life well-being as people's overall want. This generation broadens its lens to see people as whole persons and show them in the domain of finances, but also in the domains of family, friends, health, work, education, religion, and society.

The special place of the domain of finances

The domain of finances has a special place in life well-being because it is important on its own and because it underlies well-being in all other domains. We need finances to support ourselves and our families, paying for food and shelter. We need finances to maintain our own health and that of our families, paying for the services of physicians and hospitals. We need finances to pay for education that would qualify us for well-paying and satisfying jobs, careers, and vocations. We even need finances to experience and express our religion.

Doug Lynam used to be a monk. Now he is a financial adviser. “For too long,” he wrote, “religion and money have been...