Hedonic AdaptationWhy we don’t stay happierDr. Russell James III University of Georgia

Our choices and our satisfaction are driven by the comparisons we make Nearby additionalAlternativeFuturePastExpectedCurrentMultiple AlternativeRelevant Observed

Behavioral Economics ConceptsLoss Aversion; Endowment Effect; Status Quo BiasAvailability EffectsEndogenous Determination of Time PreferenceNearby additionalAlternativeFuturePastExpectedCurrentHedonic AdaptationPlacebo Effect; StereotypesMultiple AlternativeAnchoring; Paradox of Choice Peer Effects; Relative StandingRelevant Observed

Hedonic adaptationChanges in income or experiences temporarily affect happiness, but as people become accustomed to the new situation, the impact diminishes

Hedonic adaptation in marriageDaniel Kahneman(Princeton) and Alan B. Krueger (Princeton), 2006, Developments in the measurement of subjective well-being. Journal of Economic Perspectives, 20(1), 3-24.

Hedonic adaptation in widowhoodMalesFemalesA. Clark (Paris School of Economics), E. Diener (U. of Illinois) , Y. Georgellis (Brunel U.), R. Lucas (Michigan State U.), 2008, Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis. The Economic Journal, 118, F222-F243

Hedonic adaptation in divorceR. Lucas (Michigan State U.), 2005, Time Does Not Heal All Wounds: A Longitudinal Study of Reaction and Adaptation to Divorce. Psychological Science, 16, 945-950

Hedonic adaptation in being firedR. Di Tella (Harvard), J. Haisken-DeNew & R. MacCulloch (Imperial College London), 2007, Happiness adaptation to income and to status in an individual panel. National Bureau of Economic Research Working Paper, no. 13159.

Hedonic adaptation in disabilityParaplegic / quadriplegic injury victims an average of 20 years after injury tested on (1) Index of Psychological Weil-Being, (2) Life Satisfaction Index, and (3) Center for Epidemiologic Studies Depression Scale. For all three outcome measures, respondents reported levels of well-being only slightly lower than population means of nondisabled persons of similar age.R. Schulz (U. Pittsburgh) & S. Decker (U. Portland), 1985, Long-term adjustment to physical disability: the role of social support, perceived control, and self-blame. Journal of Personality and Social Psychology, 48(5), 1162-1172

R. Schulz (U. Pittsburgh) & S. Decker (U. Portland), 1985, Long-term adjustment to physical disability: the role of social support, perceived control, and self-blame. Journal of Personality and Social Psychology, 48(5), 1162-1172

In a longitudinal study of a 215,000 person-years, for people who become disabled, “we estimate the degree of hedonic adaptation at – depending on the severity of the disability – approximately 30% to 50%”Estimate may be lower due to progressive diseases. Why? A. Oswald (U. of Warwick, UK) & N. Powdthavee (U. of London, UK), 2008, Does happiness adapt? A longitudinal study of disability with implications for economists and judges. Journal of Public Economics, 92, 1061-1077.

Adaptation takes time“There is less evidence of adaptation to chronic or progressive diseases…in contrast to paralysis victims, whose condition is likely to remain constant over time, sufferers of such debilitating diseases must cope … with new impairments as their disease progresses”S. Frederick (MIT) and G. Loewenstein (Carnegie Mellon), 1999, “Hedonic adaptation,” in Well-being: The foundations of hedonic psychology. D. Kahneman & E. Diener eds. NY, NY: Russell Sage Foundation, pp. 302-29.

Hedonic adaptation in wealthHappiness level of lottery winners interviewed a few months after winning was not significantly different from non-winnersBrickman, P., Coates, D., & Janoff-Bulman, R. (1978). Lottery winners and accident victims: Is happiness relative? Journal of Personality and Social Psychology, 36(8), 917–927.

Greater past consumption leads to higher norms causing satisfaction to return to previous levels.The hedonic treadmill

Adaptation and relative standing may prevent overall increases in income from creating overall increases in satisfactionYour Previous IncomeYour Happiness at Income XYour Comparison Group IncomeEconomic research “show[s] that happiness is indeed negatively related to others’ incomes and to own past income.”A. Clark (Paris School of Economics), P. Frijters (Queensland U.), & M. Shields (U. of Melbourne), 2008, Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature, 46, 95–144

Effect of a 50% spike in incomeR. Di Tella (Harvard), J. Haisken-DeNew & R. MacCulloch (Imperial College London), 2007, Happiness adaptation to income and to status in an individual panel. National Bureau of Economic Research Working Paper, no. 13159.

Positive addictionsA way off the hedonic treadmill?A positive addiction gradually increases satisfaction from consumption and may generate future benefits.This accumulated experience resulting in greater enjoyment is called “consumption capital”.

Daniel Mochon (MIT), Michael Norton (Harvard), and Dan Ariely (Duke) studied two positive addictions that have been most strongly associated with subjective well-being: exercise and religious attendance.D. Mochon (MIT), M. Norton (Harvard), D. Ariely (Duke), 2008, Getting off the hedonic treadmill, one step at a time: The impact of regular religious practice and exercise on well-being. Journal of Economic Psychology, 29, 632-642.

Immediate impact: Well-being before and after exercise

Cumulative impactWell-being and accumulated exercise“for each extra time they had attended their gym or yoga class in the previous month, participants experienced an increase in their well-being of about a third of a point.”D. Mochon (MIT), M. Norton (Harvard), D. Ariely (Duke), 2008, Getting off the hedonic treadmill, one step at a time: The impact of regular religious practice and exercise on well-being. Journal of Economic Psychology, 29, 632-642, p.640.

2,095 surveyed before and after religious service (different people to prevent participants reporting increased mood by remembering earlier response).D. Mochon (MIT), M. Norton (Harvard), D. Ariely (Duke), 2008, Getting off the hedonic treadmill, one step at a time: The impact of regular religious practice and exercise on well-being. Journal of Economic Psychology, 29, 632-642, p.640.

Immediate impact: Well being before and after attendance

Cumulative impact: well-being and accumulated attendance

“Our findings imply that, in contrast to the notion of an inescapable hedonic treadmill, it is not pointless for people to seek to improve their well-being…, it seems like the key for long lasting changes to wellbeing is to engage in activities that provide small and frequent boosts, which in the long run will lead to improved well-being, one small step at a time.”D. Mochon (MIT), M. Norton (Harvard), D. Ariely (Duke), 2008, Getting off the hedonic treadmill, one step at a time: The impact of regular religious practice and exercise on well-being. Journal of Economic Psychology, 29, 632-642, p.640.

Hedonic adaptation and prospect theorySensitivity to the perception of gains or losses, rather than the absolute level of outcomes, reflects the importance of one’s current state in valuing outcomes.

Gains, losses, and adaptation The difference between a 7-ft cell and a 9-ft cell is insignificant when one has just lost freedom, but very important after adapting to the new level.

Prisoner after adapting to incarcerationUtilityNew prisonerNew Hedonic Norm: 7ft CellLarge difference in utility after adaptation9 ft. Cell7 ft. CellFreedomOriginal Hedonic Norm: FreedomSmall difference in utility between two large lossesS. Frederick (MIT) and G. Loewenstein (Carnegie Mellon), 1999, “Hedonic adaptation,” in Well-being: The foundations of hedonic psychology. D. Kahneman & E. Diener eds. NY, NY: Russell Sage Foundation, pp. 302-29.

SummaryChanges in income or experiences temporarily affect happiness, but as people become accustomed to the new situation, the impact diminishes.However, hedonic adaptation takes time and may not offset ongoing improvements (e.g., positive addictions) or declines (e.g., progressive diseases)

Slides by: Russell James III, J.D., Ph.D.Asst. Professor, Department of Housing & Consumer Economics, University of GeorgiaPlease use these slides! If you think you might use anything here in a classroom, please CLICK HEREto let me know. Thanks!The outline for this behavioral economicsseries is at rjames.myweb.uga.edu/outline.htm