Previous research has found that outside events seem to have little effect on happiness. Three studies in New Zealand were conducted to identify mental processes that give circumstances their favorable and unfavorable meanings. The first study examined the gap between aspiration and achievement in terms of income, education, physical fitness, leisure, and friends. As expected, most people wanted to be better off than they were. The sum of the gap between what was and what was desired predicted their unhappiness. The second study demonstrated that happy people have a stronger "Pollyannna effect" than unhappy people, i.e., they identified a larger group of positive associations in their lives. The third study found that happy people give higher pleasantness ratings across the board to a wide variety of hypothetical life events, including undesirable situations, than unhappy persons. The findings suggest that happiness should be thought about more in terms of mediating mental processes than objective life circumstances. (JAC)