Happiness & Public Policy

There’s an interesting, but rather strangely house-size obsessed article (the author has written a book on building your own house) on happiness in last week’s Washington Post to which Robin (and my Cato boss, David Boaz) alerted me. The author interviews economist Luis Rayo, who has written a fascinating theoretical paper [pdf] with Gary Becker formally modeling, among other things, the way an idealized process of natural selection would fit organisms with a strong desire for good feelings while also ensuring that the good feelings don’t last very long. In an analogical nutshell: satiation just can’t last long; we’ve got to get hungry all over again to be motivated to get off the couch and look for the next meal. The way I interpret the paper, they nicely show that the process of psychological “adaptation” or “habituation” — the alleged basis of the so-called “hedonic treadmill” — is more a precondition for running at all (like friction) than a way of running in place. Anyway, in the Post article, Rayo points out that not all satisfactions are subject to adaptation.    

More important, [Rayo] went on to say, the psychology literature and surveys clearly show that not all happiness is ephemeral and geared to endlessly moving targets. With nonmaterial things, the target does not move.

“Exercise will absolutely make you feel better. Your social network, family and friends can bring permanent happiness. Longtime relationships can bring long-term satisfaction.”

The claim here is… what? Satisfaction from money is hit hard by adaptation, but satisfaction from health and social embeddedness isn’t?

It’s truly hard to know what to make of the claim. Because I’m certain Rayo knows what he’s talking about, I’m sure he didn’t say “nonmaterial things” are not subject to adaptation. I assume the author intends something like “non-pecuniary,” since exercise is a material thing, as are our friends and family members (to be pedantic about it). And, of course, money can buy both gym memberships and the leisure to nurture our emotionally sustaining relationships. “Material things” and “things money can buy” are not well-defined categories about which one can make useful psychological generalizations.

Suppose tomorrow a Swiss bank account was opened in my name and one billion dollars was deposited in it — but I didn’t know it. It would be pretty surprising if this had any effect on my feelings or my satisfaction with life. Having money and knowing it does affect “happiness” (as construed by survey research) by providing a sense of security and control; we gain something simply in knowing we could convert our cash to consumption. But money affects happiness mostly through actual consumption. No doubt some patterns of consumption are more subject to adaptation than others. Sadly, happiness research has fixated almost entirely on income levels, and almost not at all on consumption levels, much less on differently composed patterns of consumption at different levels. It is safe to say that we know almost nothing about this.

A number of happiness researchers are souring on the strong adaptation thesis popularized by Brickman and Coates’ famous paper on lottery winners and amputees. Richard Easterlin claims to show that the fairly stable level of average self-reported happiness over the life cycle (rises slowly and slightly from about 18 to 45 and then declines slowly and slightly) is a function of offsetting changes in life-domain satisfaction, and not so much adaptation. So, for example, average satisfaction with health declines sharply from middle age. But satisfaction with finances rises sharply. Strangely, Easterlin takes declining health satisfaction as evidence that we do not adapt fully to changes in health, but he does not take sharply rising financial satisfaction as evidence that we do not adapt fully to gains in financial resources. Here is what he says about the latter:

While people’s incomes typically rise during their prime working years, and then level off and decline, satisfaction with their financial situation is, on average, fairly constant until almost age 40, after which it begins to rise, with the largest increase in late life. What must be happening is that conceptions of material needs are being readjusted as actual life circumstances change. Relative to income these needs are lowest in late life, and financial satisfaction correspondingly greatest.

It strikes me that there is an obvious hypothesis Easterlin neglects. Financial satisfaction shoots up right about the time in the life-cycle when income plummets — retirement from the work force. You can see the perversity here in looking primarily at income as a proxy for material well-being. On average old people have relatively small incomes, because they are retired, and relatively huge stores of wealth, because of compound interest. And wealth increases non-linearly due to compound interest, with the biggest gains coming later in life. Forty-something is about when expenses on children fall sharply and the compounding effects of interest starts to get good. And retirement provides the leisure time to enjoy the consumption of accumulated wealth. I conjecture that experience helps us figure out what we really like, and so old people are more likely to consume in patterns that are truly enjoyable.

Click here for an image of the charts from Easterlin’s paper. Financial satisfaction is the only thing keeping us from being miserable in old age! The lasting satisfactions from friends and family all plummet! Now, it seems to me pretty arbitrary to interpret the permanent negative effect of declining health satisfaction as disconfirming the adaptation-setpoint hypothesis but to interpret the permanent positive effect of increasing financial satisfaction in terms of some kind of complicated story about shifting conceptions of material needs. Both explanations should have the same form: Declining health makes us less happy, and we don’t get used to it. Increasing wealth, and the increased leisure and consumption it enables, make us more happy, and we don’t get used to it either.

[Cross-posted from Overcoming Bias.]

This crisp New Yorker article by James Surowieki on the differences between American and Western European labor policies very pithily sums up the hazard of top-down policy to get folks to work less and relax more:

In the American model, then, you work more hours and use the money you make to pay for the things you can’t do because you’re working, and this creates a demand for service jobs that wouldn’t otherwise exist. In Europe, those jobs don’t exist in anything like the same numbers; employment in services in Europe is fifteen per cent below what it is in the U.S. Service jobs are precisely the jobs that young people and women (two categories of Europeans who are severely underemployed) find it easiest to get, the jobs that immigrants here thrive on but that are often not available to immigrants in France. There are many explanations for the estimated forty-per-cent unemployment rate in the banlieues that have been the site of recent riots, but part of the problem is that voluntary leisure for some Europeans has helped lead to involuntary leisure for others. The less work that gets done, the less work there is to do. Helping some people get off the labor treadmill can keep many people from ever getting on the treadmill at all. [emphasis added]