Is Happiness Relative?

A happy life is a core principle in most people’s goals, retirement plans and life. It’s also the main thing I hope my clients all achieve, after all, what point is a successful financial plan if it doesn’t create a successful life plan? Although what happiness is to us remains one of the most elusive concepts we have. Something which cannot be explained by a simple statement yet has been constant across cultures, from the Stoic and Epicurean philosophers of ancient greek to today. There is even a ‘world happiness index’ where they look to create objective measures of happiness of various countries. The UK comes in 17th. Not quite a Eurovision performance but certainly not cycling. I’m not saying we’d get into the last 16 if we sorted the trains out but it wouldn’t hurt.. 

It's intuitive to think more wealth means more happiness but this often can rarely be the case. A BBC report stated Britain is less happy than in the 1950s - despite the fact that they are about three times richer. The proportion of people saying they are "very happy" has fallen from 52% in 1957 to just 36% in 2005.

Daniel Kahneman who won the Nobel Prize for Economics in 2002 also conducted a study of 1,000 Americans and found happiness did rise with salary but only to $75,000 per year to which point it flatlined. A likely explanation could be the money vs time dynamic that occurs when earnings increase that we all have to battle. 

In the Journal of Personal and Social Psychology, there was a study called ‘Lottery Winners and Accident Victims: Is Happiness Relative?’ The study put this theory of relative happiness to the test by collecting a sample of people who had been given incredibly fortunate and unfortunate hands in life. On one hand, the lottery winners. On the other, people who had suffered a life-changing accident. 

The question put forward by the paper surrounds ‘adaptation theory’. The principle of adaptation level theory is that people's judgments of current levels of stimulation depend upon whether this stimulation exceeds or falls short of the level of stimulation to which their previous history has accustomed them. The idea is what happens when you experience an event that is so extreme (good or bad) it shifts the scale so your ‘baseline’ shifts permanently. 

The concept is once the extreme event has occurred many ordinary events may seem less (or more) pleasurable since they now compare less (or more) favourably with past experience. While winning the lottery can make new pleasures available, it may also make old pleasures seem less enjoyable. New pleasures are offset by the compensatory loss of old ones. This then combines with habituation where once someone gets accustomed to a way of life, the pleasure it once brought tends to fade.

In the study, the lottery winners were extremely happy about winning the lottery but then they found their happiness when dealing with ordinary or mundane tasks reduced. The accident victims did not take as much pleasure from mundane events but curiously did display a stronger indication of the ‘contrast effect’ where they projected higher happiness for their past selves. While this may not seem surprising or interesting. It does still display a key feature of the relativity of happiness which is that it is anchored to past or present states. 

What can this teach us?

If we do want to spend our lives trying to be happy this will be a key part of how we must allocate our capital. Financial capital is what we spent, save and invest. As well as human capital - what we dedicate our time to. If there is one thing to be taken from the concepts it is - what it is to ‘be happy’ is probably more complex than we think. So often happiness is linked to a future state, it can be an event, a goal, perhaps retirement. In doing so we can at best misallocate our capital and at worse, not make the most of our lives. 

I think it’s healthy as part of any planning process to have a more nuanced conversation about what happiness is to you. In a society where we find ourselves constantly set on the ‘hedonic treadmill' where our life plans are a living breathing illustration of adaption theory. The constant push to buy the bigger house, the nicer car or have better holidays. Taking some time to reflect on what is likely to make you happy should be the starting point, after all - it’s not just your money, it’s your life.