Understanding the mechanisms producing happiness is not only crucial for individuals and psychological research but also for management science and political economy. In this paper, we develop a System Dynamics model to analyze mechanism creating happiness. It allows a better understanding of the formerly vaguely proposed connections between external life events and individual well-being. We propose that it can make a qualitative estimation of a person's happiness over time as a function of external events. It is widely accepted in positive psychology that good and bad events temporarily affect happiness. Yet, individuals quickly adapt back to hedonic neutrality. This is known as the hedonic treadmill (Brickman and Campbell, 1971), the dynamic equilibrium theory, or set point theory (Headey, 2005). We model a hedonic treadmill by assuming that people's expectations and aspiration levels adapt to the actual stock levels of happiness drivers, such as income, health, and social networks. Policy-designers learn how well-intended policies to increase happiness only succeed short-term.