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The study examined the relationship of challenge and challenge-skill balance to the positive subjective states of enjoyment, interest, happiness and relaxation in the daily life of 57 students in the Youth Training Scheme using the innovative ‘experience sampling method’. Respondents answered questions in a diary on the receipt of a signal from a pre-programmed watch or radio pager eight times a day for one week. The study showed a significant association between the mean level of challenge experienced by individuals over the seven-day period and the mean level of enjoyment and interest, but not happiness and relaxation. When incidences of high challenge were matched by high skills, enjoyment and interest both tended to be high in line with ‘flow’ model predictions. Contrary to ‘flow’ theory the study found that situations of low challenge which were exceeded by skill were associated with enjoyment, happiness and relaxation. Implications are highlighted for research into training and quality of life.