In Pursuit of Happiness

When the famous Northern Irish soccer star George Best was asked what had happened to the fortune he had earned during his playing career, he replied: “I spent a lot of money on booze, birds and fast cars. The rest I just squandered.”

How one spends time and money is a matter of personal choice. Still, discussions of longevity invariably assume that a long life is better than a short one, regardless of the quality of life. Much focus is given to the improvements in sanitation, provision of clean water supplies, and improved healthcare, which allowed average human lifespans to increase for the first time in human history, beginning in the Victorian period. The early gains in longevity were owed largely to improved sanitation. Still, more recently, improvements in healthcare and medical treatments have allowed average lifespans to increase enormously, to about 80 years of age in most developed countries from a level of about 30 years for most of human history. The question arises as to whether we may expect further increases in longevity, whether there is a natural upper bound to the human lifespan, and whether the average lifespan today is approaching that upper bound.

Whilst historically, poor sanitation and exposure to dangerous jobs were the cause of many premature deaths, more recently, the focus has also been given to lifestyle factors that may influence a healthy lifespan. Avoiding smoking and the excessive consumption of alcohol, sugar, and saturated fats and choosing instead ‘healthy’ dietary options are believed to contribute to a longer and healthier life. However, I wonder whether some of the lifestyle choices suggested that someone should make to increase their lifespan are worth it, mainly if it means forgoing some of the things that, for some people, make life worth living.

Indeed, what should matter is the total happiness someone experiences throughout their life. Mathematically, one might envision a Happiness function H(t), which represents the contentment someone experiences at each point, t, of their life, beginning at birth and ending at death, with the value H=0. H having some positive semi-definite value at each point in the intervening period. The value of this function throughout someone’s life could then be plotted as a graph, with the area under the Happiness curve (i.e., the integral of the Happiness function over one’s entire life) representing the total amount of Happiness experienced during the lifetime.

Doubtless, by practicing certain behaviors, one might hope to increase the likelihood of a long lifespan, thereby lengthening the integrand. But if the price of living one’s life in this way, which might include avoiding potentially risky hobbies and life experiences as well as forgoing dietary indulgences, is that it lowers the value of the Happiness function to a point where the total area under the curve is smaller then it wouldn’t be worth doing. A long life, just for its own sake, may not be worth living. And heaven forfend that someone should deny themself life’s pleasures in the hope of living longer, only subsequently to be run over by a bus.

To many, this will all be obvious, and some may wonder why even bother to write about it? But knowing what to maximize when trying to optimize the use of a scarce resource, such as life, is a key element of business success, and all too often, such optimization is poorly thought out.

A key role of a bank’s board and executives is to align its risk-takers’ interests with those of its shareholders and its long-term goals. Bank risk-takers want to maximize their pay. So, management must align the bank’s pay scheme with maximizing shareholder returns.

Historically, banks would measure business performance (used to determine the business’s bonus pool) using the metric of revenue generation, assuming that costs were relatively fixed and without paying attention to how much risk was being taken to generate the revenues. I remember, before the 2007-2009 Global Financial Crisis, making the case at a bank I worked for. I argued we should measure performance based on Economic Profit (also known as Economic Value Added or Shareholder Value Added). EP is revenues minus costs and the cost of capital to support the revenues. Riskier businesses or traders would generate higher revenues. But, they would be charged more for the larger amount of capital their activities consumed. So, EP is a better measure of risk-adjusted revenues and performance.

However, I was told by the CFO that the bank had attempted to use such a scheme some years before but had been forced to abandon it because it found that it was losing all its top traders to its competitors, which were still basing bonus calculations on revenue generation. Thus, before the Global Financial Crisis, , banks engaged in a race to the bottom, and we saw how that turned out.

The Crisis highlighted the dangers for banks and the economy, more generally, of poorly thought-out incentive schemes. Today, some companies still have ill-designed CEO pay schemes. They may motivate short-term stock buy-backs to boost the stock price. But, this starves the business of capital. It could be better used for investing in expansion and innovation. Those would generate much higher long-term shareholder returns.

In all walks of life, it’s vital to know what to optimize. This lesson applies to both a board’s remuneration committee and to each of us as individuals.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Personal Lines for the Business Owner/Executive
2. Preparing for Mediation: From Selection to Presentation of Claims
3. Ethical Issues In Real Estate-Based Bankruptcies / Insider Lease Agreements

This article was originally published on April 9, 2025.]

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