During the War Between the States, the Lincoln government spread rumors in Ireland and other European countries that the streets in America were literally paved with gold. When impoverished immigrants showed up on Ellis Island, they were offered a choice between slaves wages in factories, and the draft.
Without complete information, people don't always make the best decisions.
People move to where they think their lives will be easier.
So in the case of immigration to the US, the things they think match reality. This is actually a great example of people doing things they think are in their best interest that actually are.
On the issue of cities vs. suburban, people drastically undervalue the increased variety and choice in cities. Economically speaking, wine is wine - despite the fact that a wine store with 1000 varieties is better than a corner store with 5. The rub is that this kind of value is difficult to account for.
I'd move back to the city in a second if I could afford it. The $/sqft is the reason we left. Kind of tough when there are 5 people living off my salary (me, wife, 2 kids, mother-in-law).
It is very patronizing to assume people make decisions that aren't in their best interest. You can certainly point to lots of irrational behavior, but generally people move to where their lives will be easier.
The biggest problem with happiness research is that there is no objective measure of happiness, and claims are relative. Poor in a village in Thailand = happy. Poor outside LA = unhappy.