June 27, 2007

How good does it get? (6) - The unexpected role of adaptation

If you think that buying a luxurious car or having more money will structurally increase your happiness, please reconsider. Economist Dick Easterlin has shown that this will probably not happen. His research has shown that 1) after some time people will not say that they have become happier (you get used to your possession and it no longer brings you extra satisfaction), 2) often, however, they will keep on thinking that the next desired object (a boat?) will succeed in making them happy. But it won't, because the same thing will happen: they will get used to that, too. Will a higher income lead to more happiness? Not necessarily. One reason for this, as research by Easterlin has shown, is that the positive effect of having more money is 'deflated' by the fact that peoples perceived needs have increased correspondingly. The reverse thing can happen too. People can adapt to many tragic life events too and gradually get back to their earlier level of happiness. (This adaptation is not always complete, by the way; maybe more about that later). Robert Frank (previously mentioned here) is another economist who has written much about adaptation and well-being. Frank explains that the main reason we buy luxury goods is to demonstrate to others that we can afford to, thereby trying to distinguish ourselves from them. In doing so we try to achieve happiness by improving our relative status. The irony is, however, this doesn't work. The satisfaction we get from luxury spending, which Frank calls conspicuous spending, depends largely on context. The satisfaction we get from luxury spending lasts only shortly. Two examples: 1) If we buy an expensive car, this distinguishes us from our neighbor and we feel happy. If, however, next month our neighbor buys an even fancier one, our satisfaction will be largely gone. You can see how this leads to an escalation, an arms race, with no winners. 2) The satisfaction we get from luxury goods tends to decline steeply over time. We tend to get used quickly to what we have and the favourable features of the luxury good tend to fade into the background rapidly: we no longer notice the fancy features of our expensive car and our satisfaction diminishes. Bottom line: this increasing conspicuous spending does more harm than good.
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2 comments:

  1. Coert,

    And the alternative I think is to live a life of purpose - a purpose consciously chosen. When I'm on purpose I'm so much happier and I think that others probably are as well. I noticed when I would drift away from my purpose that I became more focused on material things (although I was never a very materialistic person). I didn't like this so I had to consciously switch away from it. Unfortunately, getting financial rewards can cause a person to shift their values as described in Dan Arielly's research in "Predictably Irrational." He describes an alternative school in which the teachers were very focused on the special mission of the school. The school decided to try an "innovative program" so they could secure more federal funding by financially rewarding teachers for increasing attendance. After some time, GPA's fell and so did test scores. Why? Over time, the teachers began to do more things to get students to attend that weren't educational like showing movies. The teacher's behavior did not change over night but it did change over time. Arielly, concludes based on this and other data that people actually change their behavior when they get financial rewards. And that their values change as well. Unfortunately, the short-term boosts in happiness we get from money and material things can actually make us more focused on those things. So one actually has to guard against this tendency. A big and worthwhile challenge.

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  2. yes, here is another post on a related topic: http://bit.ly/nMER4

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