How does inflation work?

What is the most embarrasing thing...

...you have ever forgotten? (Your name, your shoes, a huge appointment, etc...)

Radiolab* recently talked about studies...

...that say those who lie to themselves and distort reality are happier people (ignoring problems in the world and such). Assuming that is true, should we lie to ourselves about the troubles in our lives and in the world to be happy, or be honest and deal with the depression? Is there another possibility?

*http://www.wnyc.org/shows/radiolab/ -hear it in the podcast "Deception"