A model of ambition, aspiration and happiness

Can payoffs buy happiness? People's perception on their current payoffs depends on the social context and the historical context. This paper develops a utility model that captures both effects of interpersonal comparisons and self-adaptations in evaluating time streams of payoffs. Moment utility represents subjective happiness over payoffs, which hinges on three state variables: retaliation, aspiration, and ambition. Retaliation incorporates insights of fairness thinking and formulates people's psychological reaction on relative payoff comparisons interpersonally. Aspiration displays habit formation that formulates people's self-adaptation on their own history of payoffs. Ambition captures the net influence of the past situations to the present. Over a time window, our model delivers a new measure of individual well-being under both social and historical contexts.