Conventional wisdom says that you should use pale colours to maximise a small space. While this does work, you're likely to end up with a very bland room if you stick to white or anaemic pastel shades on every surface. Rather than covering the whole wall in one hue, create 'zones' which split the space in to sections according to its different uses – so, for example, a blush pink or warm orange framing a cosy reading nook.
Don't be afraid to add colour to woodwork, either. Make a statement by painting the door, skirting boards, window surround or fireplace in a bright hue. This eclectic look, especially eye-catching if your house has period features, allows you to use more intense tones without making the room feel overbearing.
Of course, there's nothing to stop you from painting your entire living room in one shade, if you so wish, and there are benefits to this. Paint colours tend to look different depending on natural light, creating certain 'moods' in rooms at different times of day. A lush green might offer jewel-like tones during the day and become a cosy forest hue at night, synchronising effortlessly with your energy levels and desire to feel cocooned. The effect tends to be amplified in a small space, so if you like your rooms to take on a particular mood, go for it.