Human Nature #19: Hedonic Adaptation

Imagine you’re on vacation in some exotic tropical location. You relax on the beach and take in the amazing view. The next day, you do the same but find it isn’t as amazing as the first day – so you add some aged scotch to the equation and like magic the feeling is back. Same thing the next day, but this time you add a cigar, or a massage, or something else to boost the experience. Each day, the same thing. That great feeling you are searching for requires more and more just to stay the same.

Everything is amazing and nobody is happy. The brilliant Louis CK bit on the subject goes something like this: “I was sitting on an airplane that had high-speed internet – the newest thing. It breaks down shortly into the flight. The guy next to me goes ‘this is bullshit’. How quickly the world owes him something he knew existed only 10 seconds ago.”

Psychologists refer to this phenomenon as hedonic adaptation. It is the observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative changes in one’s life. In Daniel Kahneman’s words:

People are exposed to many messages that encourage them to believe that a change of weight, scent, hair color (or coverage), car, clothes, or many other aspects will produce a marked improvement in their happiness. Our research suggests a moral, and a warning: Nothing that you focus on will make as much difference as you think.

Studies

Brickman, Coates, and Janoff-Bulman were among the first to investigate hedonic adaption in their article Lottery Winners and Accident Victims: Is Happiness Relative (1978). In it, they compared the happiness levels of lottery winners and paraplegics to a control group:

Although lottery winners felt very good about winning the lottery, they took less pleasure than controls in a variety of ordinary events and were not in general happier than controls.
The results for accident victims appear to be less supportive of adaptation level theory. The accident victims did not tend to take more pleasure in ordinary events and rated themselves significantly less happy in general than controls.

However, the accident victims did expect to eventually return to their baseline level of happiness. A Study by Silver (1982) expanded on this notion and showed that the victims of traumatic accidents do in fact return to a happiness set point after a period of time.

Lucas, Clark, Georgellis, & Diener (2003) took this further by researching the change in baseline levels of well-being due to marital status, the birth of a first child, and layoffs. They concluded:

Brickman and Campbell (1971) were correct that adaptation to events does occur. People initially react strongly to both good and bad events, but then their emotional reactions dampen. Headey and Wearing (1989) were also correct that people return to a positive rather than a neutral baseline, and this baseline is probably influenced by one’s personality.

The headwinds/tailwinds asymmetry

The empirical evidence supports the theory of hedonic adaption, but it also suggests an asymmetry between positive events and negative events. For example, Wildeman, Turney, Schnittker (2014) showed that imprisonment can negatively affect one’s level of happiness in both the short term and long term:

Our analyses show three findings: that current, but not recent, incarceration has negative effects on happiness; that the only men seemingly resilient to the pains of imprisonment are those who were either clinically depressed or very unhappy before incarceration; and that the indirect consequences of incarceration do little to explain these effects. In this way, the findings provide support for the pains of imprisonment hypothesis rather than the incomplete adaptation hypothesis.

A more recent study by Davidai and Gilovich (2016) showed that people tend to focus on the negatives in their life and ignore the positives. A kind of everyone has it easier than me mindset:

Democrats and Republicans both claim that the electoral map works against them (Study 1), football fans take disproportionate note of the challenging games on their team’s schedules (Study 2), people tend to believe that their parents have been harder on them than their siblings are willing to grant (Study 3), and academics think that they have a harder time with journal reviewers, grant panels, and tenure committees than members of other subdisciplines (Study 7).

This bias towards negativity could explain why positive impacts have less of an effect on our levels of happiness than we would expect. Davidai and Gilovich preach practicing gratitude to overcome this tendency.

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As it relates to investing

There is a lot that this research has to say about greed and envy. The concept that money doesn’t buy happiness is pretty widespread and accepted, but even those who agree with it still feel deep down that with say $10 million more, everything would just be easier. And then another $20 million on top of that, even easier. There is some truth to this, but taken to the extreme it can lead to a collector’s mindset. By definition, a collector can never be satisfied.

The trap goes something like this: I will work hard for a period of time, then use what I made to relax and spend time the way I want. I will have my cake and I will eat it eventually. However, if we are constantly adapting to a new baseline, the second part may never come. As Seneca puts it:

What difference does it make how much you have? What you do not have amounts to much more.

As investors, it’s hard not to be affected by this greed and envy. Charles Kindleberger has that great quote:

There is nothing so disturbing to one’s well-being and judgement as to see a friend get rich.

We see the party that is the boom and we want to join in. We jump into overpriced tech stocks, or hot IPOs, or hedge fund hotels because of this innate desire not to be left behind by the crowd. Instead, we should ignore this desire to keep up with the Joneses and look for investments that make sense to us individually.

Conclusion

Hedonic Adaptation explains our tendency to revert to a baseline level of happiness despite large positive or negative events occurring in our lives. It explains why the search for more is often futile and understanding it can help us avoid the errors in judgment that come with fear of missing out and falling behind the crowd.

References:
https://en.wikipedia.org/wiki/Hedonic_treadmill
http://freakonomics.com/podcast/why-is-my-life-so-hard/
http://pages.ucsd.edu/~nchristenfeld/Happiness_Readings_files/Class%203%20-%20Brickman%201978.pdf
http://www.apa.org/pubs/journals/releases/psp-843527.pdf
http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=7472&context=jclc
https://www.ncbi.nlm.nih.gov/pubmed/27869473

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Author: David Shahrestani

"I have the strength of a bear, that has the strength of TWO bears."

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