If you go by Csikzentmihalyi, challenges are pretty much a necessary ingredient for happiness. Of course the challenge also needs to satisfy the various Csikzentmihalyo components - not too difficult, not too easy, engages all your attention in the present moment, you get instant feedback etc.
As for choosing challenges, it is often a matter of reframing. For example, a piece of work can seem boring or painful until you reframe it in a form of appropriate challenge - eg to complete it in a new record time, or to do it better than anyone else, or to do it better than you have ever done it before etc.
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