Excerpts from an article written by Raj Persaud in September 10/11 issue of Financial Times (highlights are mine):

Winning Mental Ways

What is it that determines your sense of well-being? Is it the events in your life or your perception of what might have been?

An example of such thinking, referred to by psychologists as “counterfactuals,” is what takes place when you run to catch a train. If you almost make it, before the doors close on your face, you are often more upset than if you had arrived half an hour late for the train.

One of the most intriguing and controversial studies found that at the Olympic games in Barcelona 13 years ago, bronze medallists appeared happier than silver medallists. The finding was surprising not least because winning silver is by definition a better outcome than winning bronze. Why, then, the relatively long faces of runner-ups?

Why is it that silver medallists don’t look down rather than up when comparing themselves with fellow athletes? If a downward comparison makes us feel better in life, what drives some of us to incessantly compare ourselves with those doing better than us and, as a result, ensure we feel inadequate?

Both academic psychologists and economists have noticed that substantial increases in wealth are not accompanied by similar rises in well-being, and have explained this paradox by a human tendency to compare themselves asymetrically – in other words, we focus on those doing better than us.

Study after study on wealth and income finds that it is who we compare ourselves with rather than what we objectively have that determines our overall well-being, so it is the CHOICE of reference group that now becomes crucial in determining our happiness.

An intriguing exception to this thinking has been found in a study by Claudia Senik, an economist at the University of Paris at Sorbonne, and published in the Journal of Public Economics. She discovered that in unstable economies such as Russia’s, individuals take the reference income of the wealthy not as a discontented comparison but as an indication of their possible future. Senik argues that in certain economies individuals observing richer people around them take this as a sign that their own income may soon increase, which then adds to their happiness.

If it is what could be that determines our happiness, rather than what is, the good news is that we can seize control of our well-being by becoming more aware of what conspires in our environment to direct our attention to particular comparisons, expectations and alternative outcomes, and what moulds our thinking.