Why happiness is good for business

Professor Andrew Oswald believes that contented staff bring profits. Hilary Wilce talks to him

The world of economics and finance changed for ever with the global crash of 2008, and Warwick Business School has planted itself firmly on the front line of the new order by appointing the polymath academic Andrew Oswald as its new pro-dean for research and professor of behavioural science.

He will be setting up a group looking at how behavioural science can be applied to business and finance, working in the area where psychology, organisational behaviour, neuroscience, sociology, management, economics and finance all meet. "It's a really exciting opportunity to be able to build a cross-disciplinary group, hiring from a range of backgrounds," he says.

This is the first academic appointment by the business school's new dean, Mark Taylor, who comes from a high-flying asset-management background and says: "It's time to get real. My experience drove home to me that there are forces at work in the financial markets and in the economy more generally that just aren't captured by traditional economic and financial models."

Oswald agrees. "It's an interesting challenge to figure out why and where conventional economics went wrong. We have to change. Burying our heads in the intellectual sand and not budging will just end in us all being drowned."

He is the ideal head of such a venture. Although trained as an economist, he has spent much of his career working on questions of human happiness and has always drawn widely on data from different disciplines. His lively and often iconoclastic writings encompass major topics from student fees to job satisfaction, but he also explores unusual byways, such as the cleanliness of public lavatories and whether parents who have daughters are more likely to be politically left-leaning than those who don't.

In speech, though, he is formal and guarded, and has something of a reputation for not suffering fools gladly – not surprising for someone whose work has consistently placed him ahead of the curve. He was the original "Dr Doom", predicting the house-price crash years before it happened, and began to explore the subject of happiness decades before it edged into mainstream debate.

"In fact, this has happened more quickly than I expected and I believe it's because most of us are becoming instinctively aware of the tremendous pressures we are under in our everyday lives."

Both his grandfathers were engineers at Rolls-Royce, he says. "I'm probably five times better off than they ever were, but they never had the kind of mental pressures that we are all now under."

His recent work includes an exploration of the links between happiness and productivity. "I believe we've developed the first really good test of the relationship between these two things. We gave some people a small 'happiness shock', by showing them a clip of a comedy. Others were the placebo group, and had no movie, and there was another group that had suffered what you might call major life shocks, such as illness or bereavement. They were all asked to do some white-collar problem-solving tasks." The results showed clearly not only that the happier people were significantly more productive than unhappy people, but also that people who had been very unhappy adjusted slowly and grew more productive again over time.

Oswald was formerly a professor of economics at Warwick University and is just settling into his new home, where there is business-school jargon to learn "and where people come from a much wider range of backgrounds than where I was before". But he does not anticipate coming up against commercial pressures on his work. "I've never been constrained in that way in the past, and I would have thought there are enough people in the world who are interested in findings that are generally useful to mankind for that not to be a problem."

Last year, he served on the Commission on the Measurement of Economic Performance and Social Progress, set up by the French President, Nicolas Sarkozy, and chaired by the Nobel Prize-winning economist Joseph Stiglitz, to investigate new and better ways of measuring human development. He is also on the editorial board of the American journal Science, and expects that future significant developments are likely to emerge out of the coming-together of the soft and hard sciences, as economists and social scientists start to look more closely at physiological data.

Over the years, he has often been consulted by politicians. "I certainly understand the political process and how it works," he says. "At present, one of our two new leaders is very interested in my work, but I wouldn't want to say any more than that."

Now he is starting to turn his attention towards questions of risk – in particular what makes some people look after themselves for 50 years, so they are likely to get 20 more years of life as a result, while a lot of people repeatedly indulge in risky health behaviours. Smoking, drinking, drug-taking and obesity could be in his sights in coming years. "In the West we've solved all the old illnesses, but now we've got diseases of choice and I have a hunch it's all to do with how human beings perceive their level of satisfaction. What I'm interested in is the 'rational carelessness' with which some people live their lives."

So how happy is he himself? A rare smile breaks through. "I feel I'm a very lucky man. I'm paid to think – and what could be better than that?"