How often do you find yourself dreaming of getting something you want with the thought that if you could just get it, you’d be so much happier?
It could be a better job, a fancier car or a bigger house. But if you look around at what you already do have, there was likely a time when you thought that once you obtained those things, you’d be happier. Briefly, they may have boosted your happiness, but eventually, your level of happiness returned to normal and you began to desire new things. You might have just been caught in a hedonic treadmill aka hedonic adaptation.
Let’s explore more about what hedonic adaptation is and how you can make it work for your benefit.
What is hedonic adaptation?
Hedonic adaptation (also known as a hedonic treadmill) is a theory based on the observation that people tend to quickly return to a relatively stationary level of happiness or “set point” despite experiencing major positive or negative life events or changes. It, therefore, describes how we get used to the things we have and the circumstances we’re in.
To further explain the idea, a research from 1978 titled “Lottery Winners and Accident Victims: Is Happiness Relative?” studied how individuals adapt to happiness. The study revealed the following findings:
- Lottery winners felt good about winning the lottery but experienced less pleasure than the control group while doing other activities. Lottery winners weren’t in general happier compared to the control group.
- Individuals who experienced an accident that led to paralysation expected their level of happiness to return to their personal baseline despite an initial decrease in happiness after the accident.
Hedonic adaptation and personal finance
While hedonic adaptation can impact different areas of our lives anywhere from romantic relationships to the experience of physical pain, it’s often very relevant when it comes to money and its impact on happiness.
This cognitive bias means that no purchase will bring us long-term happiness. Unless we truly examine the reasons why we are making purchases, we are likely to keep reaching for another thing to buy that will offer momentary pleasure. But each new thing will quickly become the new normal, prompting another purchase.
Hedonic adaptation is also why it is so easy to stay equally stressed about money even if you got a significant pay rise or other financial increase. Your happiness might spike temporarily just after your improved financial situation but eventually, the thrill likely wears off.
Moreover, hedonic adaptation often leads to something called lifestyle inflation that can have a huge impact on your overall financial wellbeing. For many people, each new raise, promotion or windfall brings new luxuries, bills and purchases. This lifestyle inflation then slowly swallows up more and more costs.
This is why behavioural economists often refer to hedonic adaptation as the hedonic treadmill; you keep spending more and more money just to maintain your happiness.
However, the good news is that there are ways you can harness the power of hedonic adaptation to improve your financial wellness and overall happiness.
Hedonic adaptation: How to make it work for you
Now that we have a better understanding of hedonic adaptation, we can use its principles to build a happier life with healthier finances. Here are six ways you can make the hedonic treadmill work for you.
1. Recognise its impact
Not all experiences lead to the same level of adaptation and everyone doesn’t respond to adaptation in the same way. The first step is therefore to explore your individual patterns and learn what pushes your adaptation button and what doesn’t.
Now think about hedonic adaptation in the context of your own experiences. Maybe you got a promotion or bought a new car or designer accessories. Perhaps it raised your level of happiness for a while, but how do you feel about it now? The initial thrill is likely now worn off and you’ve just gotten used to it. You’re probably already thinking about what you want next.
2. Know your values
But there’s a positive side here, too – understand what’s most important to you, and make decisions based on that priority.
If you make a list of what’s most important to you and then make financial decisions based on that list, it’s easier to avoid lifestyle inflation. When you can avoid spending money on things that don’t bring lasting happiness, you have more to spend on the things that do bring lasting happiness.
But you can’t know how to spend your money to bring lasting happiness until you know what that looks like for you. Your list may look different from mine. But you should have your list of your most important values. Then, make financial decisions that line up with that list of values
3. Slow down pleasure
Dan Ariely’s book The Upside of Irrationality explains how to space purchases to increase happiness. One key to changing the adaptation process is to interrupt it. For instance, spending money on occasional small pleasures makes you happier than having one big shopping spree.
After a shopping spree, your happiness will spike but it will soon wear off as your purchases lose their novelty. If you buy smaller things more frequently, you might not reach the same level of initial happiness but your happiness will be continuously revitalised because of the repeated changes. This means that by using the intermittent approach, you can create a higher overall happiness level for yourself.
4. Focus on temporary experiences
You can also harness adaptation to maximise your overall satisfaction in life by shifting your spending away from products and services that provide you with a constant stream of experiences. Instead, focus on experiences that are more temporary and fleeting. For example, new clothes or the latest iPhone generally provide a constant experience so it’s very easy to adapt to them. On the other hand, transient experiences (such as a concert or a weekend getaway) are fleeting so you don’t adapt to them as readily. The long-term effect of a new iPhone on your happiness is likely going to be much lower than you expect. However, the long-term enjoyment of memories from the getaway will probably last much longer than you predict.
5. Avoid lifestyle inflation
Lifestyle inflation refers to an increase in spending when your income rises. The increased spending that results from lifestyle inflation can quickly become a habit; the more you earn, the more you burn. You buy more and fancier things than you need just to maintain your new standard of living.
While it’s good to occasionally treat yourself, being mindful of the differences between needs and wants can help you manage lifestyle inflation before it ends up managing you.
6. Stop comparing
Another lesson in adaptation has to do with the situations of people around us. When other people have things that we don’t, the comparison can be very apparent. As a result, we can be slower to adapt. So what does this mean in practice?
Let’s say you want a particular car but you know it’s over your budget. If you settle for a cheaper one, you’ll get used to it over time. However, if your neighbour then gets the car you originally wanted, the daily comparison between your car and the neighbour’s can slow down your adaptation and make you less happy. The Upside of Irrationality suggests that sadly, our happiness does naturally depend on our ability to keep up with the Joneses. However, you also have the ability to recognise this and make a conscious effort to decide how much you let it affect you. You also have some control over what environment you put yourself into.