Can Happiness and Sustainability be Reconciled?

Affective Forecasting Errors in Human Decision Making

von:

Stefanie Fella

Remigiusstrasse 14

50937 Köln

Köln, 24.01.2013

Wirtschafts- und Sozialwissenschaftliche Fakultät der Universität zu Köln

Bachelorarbeit im Fach Allgemeine Betriebswirtschaftslehre

Themensteller: Prof. Dr. Bernd Irlenbusch

Vorgelegt in der Bachelorprüfung im Studiengang Betriebswirtschaftslehre

I

Table of Contents

1 INTRODUCTION .............................................................................................. 1

2 THE GOAL: HAPPINESS ................................................................................ 2

2.1 What we Want ............................................................................................... 4 2.2 What we Like ................................................................................................ 5 2.3 Miswanting .................................................................................................... 6

3 DO WE ACHIEVE OUR GOAL? .................................................................... 7

3.1 Consumption and the Individual ................................................................... 8

3.2 Consumption and the Environment ............................................................... 9 3.3 A Vicious Circle .......................................................................................... 11

4 WHY WE FAIL: AFFECTIVE FORECASTING ERRORS ...................... 12

4.1 One Cause: Hedonic Adaptation ................................................................. 13 4.1.1 Diminishing Positive Emotions and Rising Aspirations ...................... 14 4.1.2 The Hedonic Treadmill ........................................................................ 16

4.1.3 Asymmetries in Hedonic Adaptation ................................................... 17 4.1.4 Explaining Asymmetries in Hedonic Adaptation ................................ 20

4.2 How Hedonic Adaptation Drives Affective Forecasting Errors ................. 22

5 A PATH TO HAPPINESS AND SUSTAINABILITY .................................. 24

6 CONCLUSION ................................................................................................. 29

7 REFERENCES ................................................................................................. 30

8 APPENDIX ....................................................................................................... 37

II

List of Figures, Tables, and Questionnaires

Figure 1: Different Notions of Utility .......................................................................... 6

Figure 2: Vicious Circle of Consumption, Happiness, and Sustainability ................. 11

Figure 3: Asymmetric Hedonic Adaptation and Systematic Utility Misprediction ... 23

Figure 4: Upward Spiral of Consumption, Happiness, and Sustainability ................ 28

Figure 5: Reported Happiness Over Time in the United States ................................. 41

Figure 6: Reported Life Satisfaction Over Time in West Germany .......................... 42

Figure 7: Trends in Ecological Footprint and Biocapacity per Person ...................... 44

Figure 8: Mean Self-Reported Health ........................................................................ 46

Figure 9: Mean Happiness of Currently Married and Unmarried Females ............... 47

Figure 10: Speed of Hedonic Adaptation to Material and Experiential Purchases .... 48

Figure 11: Hedonic Adaptation to Commuting and Labor Income ........................... 49

Figure 12: Forecasted and Experienced Positive Affect by Walking Route .............. 50

Table 1: Importance of Subjective Well-Being to College Students ......................... 37

Table 2: Mean Happiness Ratings by Lottery Winners and Accident Victims ......... 43

Table 3: Ownership of and Desires of Costly Consumer Goods ............................... 45

Questionnaire 1: The Subjective Happiness Scale ..................................................... 38

Questionnaire 2: The Satisfaction With Life Scale .................................................... 39

Questionnaire 3: The Positive and Negative Affect Schedule ................................... 40

III

List of Abbreviations

AIPO American Institute of Public Opinion

CO2 Carbon dioxide

ERB Ecologically or environmentally responsible behavior

Gha Global hectare

GSS General Social Survey

HAP Hedonic adaptation prevention

HPI Happy Planet Index

NEF New Economics Foundation

NORC National Opinion Research Center

PANAS Positive and Negative Affect Schedule

ppm Parts-per-million

SOEP Socio Economic Panel

SWB Subjective well-being

UNDP United Nations Development Program

WVS World Values Survey

WWF World Wide Fund for Nature

1

1 Introduction

Given free choice, there seems to be great consensus that human behavior is rooted

in the pursuit of happiness (Hsee/Hastie, 2006): What people buy, who people marry

as well as who and what people vote for altogether aims at creating “the good life”,

the life people would like to have (Easterlin, 2003). From the perspective of standard

economic theory there is no doubt that rational agents will arrive at maximizing their

happiness. Yet, the field of psychology, in particular happiness research, challenges

the rationality of human decision making. Thus, this paper inquires the central

question of whether people really know and choose what will ultimately make them

happy.

The investigation of this question starts with chapter 2, which introduces the concept

of happiness, how it can be measured, and whether it can actually be increased.

Further, it discusses different notions of utility and suggests happiness be a proxy for

experienced utility in order to test for utility maximization. Taking revealed

preferences theory as point of departure, chapter 3 examines how people choose to

pursue happiness. The disclosed belief that consumption leads to the good life is

challenged as people do not seem to get happier by consuming more. Instead, the

bigger picture shows that consumption harms the planet, trapping humankind in a

vicious circle of declining sustainability in the face of stagnant happiness. This state

can be explained with affective forecasting errors, when people fail to predict what

will really make them happy. Chapter 4 looks at hedonic adaptation as one source of

such errors and finds asymmetries which account for distorted choices:

Unanticipated stronger adaptation to consumption results in a systematic

overvaluation of the benefits to consume, which provides one explanation for the

common belief that happiness can be derived from consumption. Moreover, chapter

5 suggests that sustainable behavior is systematically undervalued because most

people are not aware of the intrinsic satisfactions such behavior can yield.

Finally, humankind could free itself from the vicious circle by realizing three things:

First, consumption does not necessarily increase happiness. Second, consumption

strains the planet. And third, happiness may be derived from engaging in sustainable

behavior. This could clear the way for an upward spiral leading to a happier and

more sustainable future.

2

2 The Goal: Happiness

“Happiness is the meaning and the purpose of life, the whole aim and end of human

existence.” This popular quote by Aristotle is reflected in the responses of 7,204

college students across 42 countries which show that they often think about

happiness and life satisfaction and place great importance on both (see Table 1 for an

excerpt). More than 60 percent rated happiness and life satisfaction at the top of the

importance scale and only 6 percent viewed money as more important than happiness

(Diener, 2000). It seems that most people want to be happy.1 But what is happiness?

According to sociologist Ruut Veenhoven (1984), happiness is “the degree to which

an individual judges the overall quality of his life-as-a-whole favorably. In other

words: how well he likes the life he leads.” (italics original). This evaluation of one’s

life includes affective as well as cognitive components: Frequent positive affect and

infrequent negative affect are associated with more happiness while the cognitive

side captures the conscious, subjective estimation of one’s satisfaction with life

(Diener, 1994). On the one hand, ‘happiness’ is often used as an equivalent to the

more scientific term ‘subjective well-being’ (SWB), which functions as an umbrella

term for pleasant affect, unpleasant affect, and life satisfaction (e.g., Lyubomirsky et

al., 2005; Nicolao et al., 2009). On the other hand, ‘happiness’ is often used

interchangeably with ‘life satisfaction’, which emphasizes the cognitive aspect of

happiness (e.g., Welsch, 2009). For convenience, the terms ‘happiness’, ‘SWB’ and

‘life satisfaction’ will be used as synonyms unless when referring to empirical

evidence.

Commonly, happiness is measured using large-scale surveys directly asking about

either happiness or life satisfaction. The General Social Survey (GSS) in the United

States uses a single-item question on a three-point verbal scale to measure happiness:

"Taken all together, how would you say things are these days – would you say that

you are very happy, pretty happy, or not too happy?" A multi-item measure for

happiness is Lyubomirsky’s (1999) four-item Sustainable Happiness Scale in which

people rank themselves on seven-point numerical scales. To identify people’s

1 It is important to acknowledge that the pursuit of happiness has its origin in the Western culture. For

example, it is anchored in the American Declaration of Independence as a right to all citizens

(Lyubomirsky et al., 2005). Yet, Table 1 shows that students from China, India, and Tanzania also

place great importance (above the midpoint) on happiness and life satisfaction. Moreover, Bhutan is a

typical non-Western country which endorses happiness as an official measure of national well-being.

Its Gross National Happiness index stands in contrast to the widely used Gross National Product (Ura

et al., 2012). Thus, this paper is based on the assumption that most people care about happiness.

3

satisfaction with life, the Eurobarometer surveys use a single-item measure on a four-

point verbal scale: "On the whole, are you very satisfied, fairly satisfied, not very

satisfied, or not at all satisfied with the life you lead?" Similarly, the World Values

Survey (WVS) asks: "All things considered, how satisfied are you with your life as a

whole these days?" Respondents choose from a ten-point numerical scale from “1 =

dissatisfied” to “10 = satisfied”. An equivalent multi-item approach to the cognitive

component of happiness is the Satisfaction With Life Scale, in which people answer

five items on seven-point numerical scales (Pavot/Diener, 1993). Finally, the

affective component of happiness can be measured using the 20-item Positive and

Negative Affect Schedule (PANAS, Watson et al., 1988) in which people rate how

much they feel different emotions on five-point numerical scales. Averaging scores

of life satisfaction and positive affect followed by subtracting negative affect

describes an accepted multifaceted approach to measuring happiness (e.g.,

Sheldon/Lyubomirsky, 2012).2

If everyone wants to be happy the crucial question is whether happiness can actually

be increased in the long run: If any attempts were “as futile as trying to become

taller“ (Lyubomirsky et al., 2005) the pursuit of happiness would be pointless. This

view is represented in the set-point theory of happiness according to which every

person has a genetically determined happiness level from which she can deviate in

the short term, but to which she will always return in the long run. However, an

integrative model suggests that the individual happiness set-point is only one of three

factors which affect long-term happiness. In particular, genetic dispositions are said

to account for about half of the variance in cross-sectional well-being which leaves

room to influence one’s happiness via two other determinants: Life circumstances

and intentional activity, with the first explaining averagely 10 percent and the latter

roughly 40 percent of variance (Lyubomirsky et al., 2005). This idea that, to a certain

extent, people are in control of their own happiness corresponds to another quote by

Aristotle: “Happiness depends upon ourselves.” Assuming that most people want to

be happy and that long-term happiness can be increased, the aim of this work is to

study whether people know how to increase their happiness. The next section will

introduce the economic view on this question.

2 See appendix for the complete Sustainable Happiness Scale, Satisfaction With Life Scale and

PANAS. The single-item questions were taken from Frey and Stutzer (2002). For more single- and

multi-item happiness measures as well as critics see Diener (1984; 1994).

4

2.1 What we Want

Intuitively, people want what they believe will make them happy. In this sense,

wanting refers to predictions of future liking (Gilbert/Wilson, 2001) and

encompasses two notions of estimated utility:

Predicted utility is defined as a decision-taker’s anticipation of the utility

experienced in a future outcome prior to a decision (Kahneman/Snell, 1990).

Economic textbooks typically speak of people’s preferences and it is assumed that

rational individuals know these.3 Consequently, in a decision-context, they rank all

possible alternatives in order of their familiar preferences and then choose the

alternative with the most preferred outcome (Gravelle/Rees, 2004). By introducing

utility as numerical description of preferences (Varian, 2010), one recognizes the

idea of utility maximization as the ultimate goal in the above assumptions

(Kahneman/Thaler, 2006): Choosing the most preferred available option equals

choosing the one that yields the highest utility. This outlines two important

assumptions about rational individuals: First, they are capable of accurately

predicting the utility they will experience in future outcomes. Second, they base their

choices on these predictions and ultimately maximize their utility.

As predicted utility and preferences are typically not directly observable, decision

utility is the more prominent term in modern economics: It reflects the “wantability”

(Kahneman/Thaler, 2006) of different choice options revealed at the time of decision

making. Thus, people’s preferences can be derived more objectively from observing

their actual choices which is the approach of revealed preferences theory. This

theory contrasts actually chosen options with others that could have been chosen, but

were not. Hence, for a rational, utility-maximizing individual the chosen option must

be the better one, thus revealed preferred to the latter (Varian, 2010). Moreover,

since rational agents always choose what is best for them, decision utility can be

inferred from their revealed preferences in observed choices and, at the same time, be

used to explain the choices made (Kahneman et al., 1997). Consequently, standard

economic theory does not question that people like what they wanted as this is part of

the definition of the rational, utility-maximizing individual.4

3 An additional assumption is the monotonicity of preferences, implying that more (of what is good) is

better (Varian, 2010). This assumption will be of relevance in section 3 and 4. 4 To highlight the inherent tautology: People want something because they will like it and people

(must) like it because they wanted it.

5

Finally, utility can be interpreted as “an indicator of a person’s overall well-being”

and “a numeric measure of a person’s happiness.” (Varian, 2010). Thus, rational

agents can be thought of as seeking decisions that maximize their personal happiness.

From an economic perspective, this confirms that happiness is the ultimate goal in

human behavior. Moreover, rational agents are assumed to accurately predict future

happiness and consequently choose what makes them happy.

2.2 What we Like

Yet, it would be interesting to examine whether what people want ex ante really is

what they like ex post, namely, if it actually makes them happier. This requires an

evaluation of the subjective, experienced hedonic quality after the decision has been

made, which is defined as experienced utility. There are two reasons why this classic

notion of utility diminished over history: On the one hand it did not seem possible to

objectively measure it, on the other it did not seem necessary since observable

decision utility already accounted for everything (Kahneman et al., 1997).

The concept of happiness relates closely to experienced utility: They share the

subjective nature, the resulting measurement issues and as a consequence, being

abandoned from modern economics (Varian, 2010). However, concerning happiness,

the issue of subjectivity has found acceptance in two senses: First, it is more and

more acknowledged that only the person herself can make final judgments about how

happy she is (Lyubomirsky et al., 2005). This idea is actually reflected in standard

economic theory, which grants rational individuals with the ability to know exactly

what makes them happy (Frey/Stutzer, 2002). Therefore, self-report measures such

as the ones listed above seem justified. Second, empirical evidence derived from

more objective variables, such as the happiness judgments of others and

physiological well-being indicators, strengthens the validity and reliability of self-

reports (Diener, 1994; Lyubomirsky et al., 2005). Thus, measures of subjective

happiness can serve as adequate empirical approximation to experienced utility,

which is supported by several economists (e.g., Frey/Stutzer, 2002; Welsch, 2009).

Finally, Bruno Frey, one of the recent advocates of integrating happiness research

into economics, suggests that reviving the historic notion of utility can enrich future

economic analysis in a very central aspect: Directly measuring the happiness derived

from choices allows a distinct evaluation of decision utility and experienced utility.

6

This enables testing the fundamental assumptions of standard economic theory such

as whether people’s own choices actually make them happy (Frey/Stutzer, 2002).

This idea of separately analyzing the optimality of human decisions is supported in

multiple works (Kahneman et al., 1997; Kahneman/Snell, 1990; Kahneman/Thaler,

2006; Stutzer/Frey, 2006; Welsch, 2009; Welsch/Kühling, 2010).

2.3 Miswanting

As illustrated above, three different notions of utility can be attributed to the

dimensions of wanting and liking (see Figure 1): Before making a decision, people

need to make predictions about the future experienced utility for each available

option (1). Predicted utility then determines decision utility to the extent that people

act on their own predictions when making the decision (2). If the prediction was

accurate (1) and the person based his or her choice on it (2), then the experienced

utility following the decision should match the initial decision utility (3). Truly

rational agents are expected to always arrive at this ideal result (that is, they like

what they wanted) which offsets the need to analyze ex post experienced utility.

However, recent research both in psychology (e.g., Gilbert/Wilson, 2001;

Kahneman/Thaler, 2006) and economics (e.g., Stutzer/Frey, 2006) raised doubts

about the rationality of human decision making and found that people often do not

like what they wanted and, in reverse, do not want what they will like. This

discrepancy between ‘wanting’ and ‘liking’ was coined ‘miswanting’ by Gilbert and

Wilson (2001) and is manifested in a deviation between decision utility and

experienced utility (3). The related question of whether people choose what really

makes them happy will be examined in the next chapter. If people are not happier

with their own decisions, it is either due to inaccurate utility prediction (1) or because

of not following one’s own predictions (2), or both (Hsee/Hastie, 2006). This paper

Figure 1: Different Notions of Utility

(own graph based on Kahneman/Snell, 1990)

Predicted

utility

Decision

utility Experienced

utility

Ex ante wanting Ex post liking

(1)

(2) (3)

7

will focus on the first reason referring to the question of whether people know (can

they predict) what will make them happy, which will be discussed in chapter 4.5

3 Do we Achieve our Goal?

This section investigates whether people are happy with their own choices.6 In other

words: Do they like what they wanted? Looking through the lenses of revealed

preferences theory, the world population discloses in a clear manner what it wants

and believes will increase its happiness:

Over a century, global consumption expenditure (private and public) has increased

sixteen-fold from $1.5 trillion in 1900 to $24 trillion in 1998. This is six times the

amount in 1950 and twice the amount in 1975, which describes an exponential trend.

On the individual level, per capita consumption has increased consistently in

industrial countries over the last quarter of the 20th

century, accounting for findings

such as American households needing twice the income to satisfy their consumption

aspirations in 1994 as compared to 1986 (UNDP, 1998). Accordingly, declining

household savings rates as well as surprisingly small shares of household

expenditures spent on food suggest that Americans spend more and more income on

consumption, specifically, of durable goods.7

Generally, the following global consumption patterns have been observed from 1950

until the end of the 20th

century: A doubling in the demand for wood, a tripling in the

consumption of water, grain, beef, and mutton, a four- to fivefold increase in marine

catch, a sixfold increase in paper used, and a tenfold increase in the amount of cars

driven (Fien et al., 2008; Gardner et al., 2004; Winter, 2004).

To summarize, human consumption of natural resources in the second half of the 20th

century has exceeded all prior human consumption (Fien et al., 2008). Which leaves

the crucial question: Has this made humankind any happier?

5 Chronologically, focusing on this reason makes sense because one first needs to make the prediction

before one can act on it. If failure already occurs in the first step, the second needs not to be closer

examined. 6 Therefore, parts of chapter 3 draw on a multitude of facts collected in different reports. Each fact

may stem from a different single source. Yet, for convenience, only the reports will be cited. 7 American households’ average savings rate of seven percent in 1983 halved in the 15 years that

followed (UNDP, 1998). In 1998, per capita household expenditures in the United States were

$21,515, however, only 13 percent of it was spent on food (Gardner et al., 2004).

8

3.1 Consumption and the Individual

In stark contrast to the explosion of consumption, self-reported happiness in the

United States has not increased over half a century (see Figure 5). Similarly, self-

reported life satisfaction in West Germany has been constant for almost 40 years (see

Figure 6). The stagnant happiness in two highly industrialized countries, which can

afford high consumption levels, suggests that people do not really like the

consumption they wanted – otherwise they should be happier. Of course, the United

States and West Germany are only illustrative examples.8

However, with happiness research being a young discipline and the first World

Happiness Report (Helliwell et al., 2012) only published in 2012, the availability of

longitudinal happiness data, especially for the entire world, is very limited.

Moreover, happiness related to consumption has been examined only scarcely.

Instead, research has focused on the relationship between happiness and income,

assuming that a higher income will raise happiness since people can consume more

(Frey/Stutzer, 2002). Yet, when asking 22 winners from the Illinois State Lottery,

who had won between $50,000 and $1,000,000 within the past 18 months, and 22

controls about their general happiness level, lottery winners did not rate themselves

significantly happier than controls (4.00 versus 3.82 on a scale from “0 = not at all

happy” to “5 = very much”, see Table 2). This widely cited study by Brickman and

colleagues (1978) is one among plenty that suggest only a weak relationship between

income and happiness over time (Frederick/Loewenstein, 1999; Frey/Stutzer, 2002).9

Hence, this particular relationship will not be further discussed here.

Instead, studying materialistic people who believe in acquisition as the pursuit of

happiness (Richins/Dawson, 1992) may provide more insight into the effects of

consumption on happiness: Numerous findings show a negative correlation between

materialism and life satisfaction, happiness, fun, as well as self-actualization and a

positive correlation between materialism and self-criticism, social anxiety, disorders,

and neuroticism (for an overview, see Burroughs/Rindfleisch, 2002).10

Since money

is needed in order to attain material wealth, materialists naturally place greater

importance on aspiring financial success than on other goals. This, too, is shown to

8 For similar life satisfaction trends in 15 more Western European countries, see Layard et al. (2010).

9 One needs to distinguish between the association of income and happiness at a given point in time

(which is found to be significant) versus over time (which is found to be weak; Frey/Stutzer, 2002). 10

By evaluating large-scale data (N = 23,623) from the World Values Survey, Welsch and Kühling

(2010) replicated the negative association of materialism with life satisfaction over 27 countries.

9

be associated with less self-actualization as well as more depression and anxiety

(Kasser/Ryan, 1993). Furthermore, financial success, physical attractiveness, and

social recognition belong to so called extrinsic goals.11

In this sense, materialists are

typically more extrinsically oriented which is also found to be negatively correlated

with well-being and positively correlated with distress (Kasser/Ryan, 1996). Lastly,

wanting more possessions seems particularly inherent to materialists and this craving

is associated with lower life satisfaction (Ian Norris/Larsen, 2011).

In summary, this broad body of evidence raises doubts on the idea that more

possessions and consumption will actually make people happier. In fact, focusing too

much on these means to happiness might be detrimental to individual well-being.

The paradox that the entire world chose to consume more but somehow did not get

happier by doing so implies that people do not know what really makes them happy.

This contradicts fundamental assumptions of standard economic theory that rational

agents know their own preferences and that more is always better. Furthermore, the

suggestion that “(e)conomics would not be a very interesting subject in a world

where everyone was satiated in their consumption of every good.” (Varian, 2010)

implies that the insatiability of consumers’ wants seems desirable from an economic

perspective. Hence, current media and advertising do their best to convince

consumers to want more: Global advertising expenditures increased ninefold since

1950 and reached about $446 billion in 2002 (Gardner et al., 2004), driving

humankind into more consumption and a little more, if any, happiness.

3.2 Consumption and the Environment

The human pursuit of happiness through consumption leaves its traces not only on

the well-being of the individual but also on the well-being of the planet:

The annual global energy demand needed to provide for the ever-increasing

consumption was more than 20 times higher at the end of the 20th

century than at its

beginning (Winter, 2004). Accordingly, the burning of fossil fuels has increased

around fivefold since the mid-20th

-century, contributing greatly to a fourfold increase

in annual carbon dioxide (CO2) emissions (UNDP, 1998). In 1950 the atmospheric

CO2 concentration was at 300 parts-per-million (ppm), in 2011 it was at 390.5 ppm

(WWF, 2012). These developments account much for the rise in average global

11

Extrinsic goals constitute means to different ends and depend on reward from others while intrinsic

goals directly satisfy basic psychological needs (Kasser/Ryan, 1996).

10

surface temperature of 0.8°C over the past century and of more than 0.5°C since

1950, a phenomenon widely known as global warming (Winter, 2004; WWF, 2012).

Around 80 percent of the planet’s initial forests have vanished, partly due to the need

for fuel provision (Winter, 2004). At the same time, 20 percent of CO2 emissions

occurred because of deforestation since trees typically bind CO2, establishing an

unfavorable interaction (WWF, 2012). Moreover, overgrazing and intensive farming

lead to the degradation of one sixth of the planet’s land area and per capita waste

production in industrial countries tripled in the last fifth of the 20th

century (UNDP,

1998). Since the mid-20th

-century, global water availability has dropped to less than

half, ocean acidity has increased by 30 percent and almost half of the fishing

resources are close to being exploited to their extinction (UNDP, 1998; WWF, 2012).

These findings can be summed up in a single index which reflects the overall health

of the planet: The Living Planet Index reports changes in biodiversity through

monitoring more than 9,000 populations of different species. Between 1970 and 2008

this index decreased by 28 percent which hints at a severe decline of the planet’s

habitability (WWF, 2012).

A different index mirrors what humankind demands from the planet in order to

realize their consumption levels: The Ecological Footprint calculates the amount of

land area needed to provide the renewable resources which people consume, the area

used for infrastructure, and the amount of forest area needed to absorb CO2

emissions. In 2012, the average global footprint was 2.7 global hectares (gha),

meaning that an individual needed 2.7 gha of land to realize his or her current

average consumption level (WWF, 2012).12

Of more interest, however, is the

maximum possible per capita consumption level the planet can actually offer within

environmental boundaries, that is the earth’s biocapacity adjusted by the world

population. In 1900 the planet’s biocapacity per person was 5 gha, in 1950 it was 3.6

gha and in 2008 only 1.8 gha (Rees/Wackernagel, 1994; WWF, 2012). Relating

current global Ecological Footprint to carrying capacity, humankind requires the

equivalent of 1.5 planets to realize its consumption levels.13

In other words, the

planet would need 1.5 years to regenerate humanity’s annual renewable resource use.

This clearly unsustainable relation of human demands exceeding the earth’s carrying

12

A global hectare represents the average biological productivity of various land types (WWF, 2012). 13

For comparison: If everyone was to live like the average US American did in 2008 (whose footprint

was at 7.2 gha) the equivalent of four planets would be needed (NEF, 2012; WWF, 2012).

11

capacity is termed ecological overshoot. Longitudinal data shows that this

unfavorable state was first entered in the 1970s and has only severed ever since (see

Figure 7). If humankind continues this trend, the equivalent of two planets will be

needed by 2030 and almost three by 2050 (WWF, 2012). Finally, materialists play an

important role as they engage less in buying used goods, repairing old things, and

riding bicycles, consequently leaving larger than average Ecological Footprints. In

general, materialism correlates negatively to a voluntarily simple lifestyle and to

contributing to ecological organizations, which emphasizes that materialists care less

for the environment (Richins/Dawson, 1992). Clearly, pursuing happiness through

consumption not only has personal costs but also worrying ecological costs (Kasser,

2006) as “our patterns of land use, resource consumption, and wastefulness are

damaging to the planet and, in the long run, incompatible with survival.” (De

Young, 1996).

3.3 A Vicious Circle

Figure 2 summarizes the quintessence of this chapter: Section 3.1 clarified that more

consumption does not necessarily lead to more happiness (1) as commonly believed.

Instead, focusing too much on it may actually diminish happiness as illustrated by

the misery of materialists. In reverse, it is possible that unhappy people tend to seek

resolution in consuming more (2) which may establish a sub cycle in which increased

consumption and stagnant happiness enforce each other (e.g., Richins/Dawson,

1992). Moreover, section 3.2 demonstrated the severe effect overconsumption has on

the planet (3), describing the very unsustainable path humankind is currently on

(Winter, 2004).14

14

The term overconsumption, related to the ecological overshoot, refers to the fact that humankind

consumes more than the planet can actually provide for (WWF, 2012).

Figure 2: Vicious Circle of Consumption, Happiness, and Sustainability

(own graph)

Consumption ↑ Happiness → (↓)

Sustainability ↓

(1)

(2)

(3) (4)

12

Lastly, it seems only logical that the declining habitability of the planet not only

applies to nonhuman species but to all that live on it. For example, global warming

accounts for an increased frequency of natural hazards and a sea level rise of 10-20

centimeters over the past century, endangering coastal regions (Gardner et al., 2004;

Winter, 2004). Moreover, happiness-related environmental valuation studies show

that human well-being is severely affected by climate, natural hazards, air and water

pollution, and airport noise (for a review, see Welsch/Kühling, 2009). Finally,

increasing demand for decreasing resources will create tensions among nations as,

for example, the number of people endangered by water deficit will almost quintuple

in the first quarter of the 21st century (Winter, 2004). In conclusion, it seems that

declining sustainability will ultimately diminish human happiness (4).

This completes the idea of a vicious circle in which consumption aimed at increasing

happiness not only fails to do so, but also damages the planet which additionally

adversely affects happiness. In this sense, consumption seems to be “neither the

ideal path to happiness nor the path to sustainability.” (O’Brien, 2008).

4 Why we Fail: Affective Forecasting Errors

Contradicting the assumptions of standard economic theory, the preceding chapter

implied that people do not always choose what makes them happier – with

detrimental effects not only for themselves but also for the environment. This failure

can be explained with utility misprediction (Frey/Stutzer, 2008), when the ex ante

predicted utility deviates from the ex post experienced utility (recall Figure 1). This

only recently evolved term in the economic field has an equivalent, older term in the

field of psychology: Affective forecasting error which refers to the deviation between

predicted and experienced emotional responses (Wilson/Gilbert, 2003).

In general, the process of affective forecasting describes people’s efforts to predict

their own future feelings following a decision. It was coined by Wilson and Gilbert

(2003) who recognized the importance this type of forecasting plays in pursuing

happiness by classifying the latter as affective state.15

Thus, utility prediction and

affective forecasting both aim at identifying what makes people happy, and utility

15

Forecasting may also concern the prediction of future events or behavior (Wilson/Gilbert, 2003).

13

misprediction and affective forecasting errors both hint at the fact that people often

fail to achieve happiness and instead have miswanted (Gilbert/Wilson, 2001).16

The broad body of research on affective forecasting (for overviews, see

Loewenstein/Schkade, 1999; Wilson/Gilbert, 2003) supports the notion that people

are only imperfect fortune tellers. The literature acknowledges that people are mostly

correct in predicting whether they will like or dislike something (valence) and that

prediction accuracy is higher if the emotional experience is immediate as well as

familiar (Kahneman/Snell, 1990; Kahneman/Thaler, 2006). However, the impact

bias is a well-established finding which states that people tend to exaggerate when

predicting the emotional impact of future events. For example, when asking 33

assistant professors to predict how happy they would be in the five years after

receiving tenure and 25 former assistant professors, who have received tenure within

the past five years, forecasters overestimated their future happiness (Gilbert et al.,

1998).17

Importantly, the impact bias consists of two aspects of emotional reactions:

Their intensity (how strong) and their duration (for how long; Wilson/Gilbert, 2003).

This paper examines the second aspect: Among numerous sources of affective

forecasting errors the process of hedonic adaptation describes a decrease in the

affective intensity of a change. Not anticipating this decline explains why people

tend to overestimate the durability of their emotions. The following sections will

look at hedonic adaptation processes as one cause of affective forecasting errors,

leading to the present state of overconsumption and environmental degradation

(Chancellor/Lyubomirsky, 2011; Frederick/Loewenstein, 1999; Frey/Stutzer, 2008;

Welsch/Kühling, 2010).18

4.1 One Cause: Hedonic Adaptation

In general, adaptation describes the declining effects of a stimulus which is constant

or repeated (Frederick/Loewenstein, 1999). Hedonic adaptation refers to stimuli that

induce affective responses associated with pleasure or pain. Among other types of

16

In the following, the term ‘utility misprediction’ from economics, ‘affective forecasting errors’ from

psychology and the more colloquial term ‘miswanting’ are used interchangeably. 17

This is a typical cross-sectional research design in which the predictions of one group (which is

about to face a certain event) are matched with the experiences reported by another group (which has

already experienced the event) to determine forecasting accuracy. Difficulties in matching as well as

the inaccuracy of retrospective reports may cause problems (Loewenstein/Schkade, 1999). 18

It would exceed the scope of this paper to examine every one of the existent sources of affective

forecasting errors. Therefore, the focus here will be on hedonic adaptation.

14

adaptation (e.g., perceptual or physiological), hedonic adaptation is of special interest

since the affective component influences how happy or unhappy a person feels.19

The

above identified stimulus of relevance here is consumption as a means to increase

happiness. Generally, affective intensity decreases over time: An unfavorable change

loses its negative, unpleasant effects and a favorable change its positive, pleasant

effects (Frederick/Loewenstein, 1999). The latter aspect is crucial to this paper since

the preceding chapter has shown that people fail to make themselves happier, that is,

to increase and maintain positive affect. Hedonic adaptation to pleasant changes

derived from consumption will be used to explain this failure.

4.1.1 Diminishing Positive Emotions and Rising Aspirations

The newly developed hedonic adaptation prevention (HAP) model by Sheldon and

Lyubomirsky (2012; also see Chancellor/Lyubomirsky, 2011) introduces two ways

in which the effects of a positive change on subjective well-being erode:

First, the positive emotions derived from a favorable event diminish over time as one

gets used to what was new. Here, hedonic adaptation seems to be driven by

perceptual adaptation: Taking up the example of lottery winners, at first, the gained

wealth enables new, exciting pleasures which could not have been afforded before.

After time passes, however, the new range of additional pleasures is perceived as

ordinary and the positive emotions derived from them fade. Brickman and colleagues

(1978) call this the process of habituation.

Second, even if positive emotions from a favorable change continue to occur,

growing aspirations decrease their positive effect on SWB. In this case, hedonic

adaptation seems to be stimulated more cognitively than sensory:20

Now that the

lottery winners have the means for a better life, they will likely expect to live in

larger houses and more luxury. If these expectations exceed realistic scenarios, this

path will actually lead to negative emotions and dissatisfaction despite the initial

positive change. Furthermore, rising aspirations limit the positive impact of future

favorable changes through setting a higher standard of what is needed just to

19

Think of someone who steps out of a dark movie theater into the bright daylight: The sunlight will

likely feel painful and the body naturally reacts with shutting one’s eyes, contracting pupils or turning

away from the sun. These physiological and behavioral reactions lead to perceptual adaptation to the

extent that the daylight now is perceived as less intense and therefore, less unpleasant. The outcome

describes hedonic adaptation which is often derived from other adaptation processes

(Frederick/Loewenstein, 1999). 20

This distinction of sensory and cognitive stimuli is proposed by Frederick and Loewenstein (1999).

15

maintain the original happiness level. This process of adopting a new reference point

against which future changes will be judged as satisfying or not is labeled

satisfaction treadmill by Kahneman (1999). Lastly, Brickman and colleagues (1978)

find evidence for the parallel working of a contrast effect that diminishes happiness:

The lottery winners rated usual everyday activities (e.g., talking to a friend, or buying

clothes) as significantly less pleasant as did controls (3.33 versus 3.82 on a scale

from 0 to 5, see Table 2). Understandably, mundane pleasures (such as having a nice

homemade Sunday brunch) will be perceived as minor and less enjoyable when

compared to the new range of available pleasures (such as having an all-you-can-eat

Sunday brunch in a five-star hotel). In this sense, the experienced upward shift in the

reference point of lottery winners blocks happiness increases in two ways:

Downgrading the ordinary pleasures and holding higher expectations regarding

future pleasures.21

This distinction between two underlying processes of hedonic adaptation is not new:

Frederick and Loewenstein (1999) introduced desensitization as a general decrease in

the affective intensity of a stimulus and shifting adaptation levels as decreasing

affective intensity due to an altered neutral stimulus level. The first seems similar to

declining (positive) emotions and the second to rising aspiration levels.22

Importantly, desensitization may lead to indifference towards stimulus changes while

shifting adaptation levels may result in enhanced sensitivity and eventually,

dissatisfaction (as described above). The latter is an unfavorable state which typically

motivates people to change it (Frederick/Loewenstein, 1999). This motivational

effect seems crucial to the topic of consumption because people may be more

inclined to buy new things if increased aspiration levels make them feel dissatisfied

with what they already have than if they were just indifferent to it. Especially in the

face of the current media focusing on creating new wants, it seems safe to assume

that overconsumption is mainly due to artificially created, higher aspirations.23

21

Notice how a change in the cognitive neutral point interacts with past and future sensory

evaluations, both leading to diminished happiness. 22

The major difference is that the HAP model refers only to positive changes whereas Frederick and

Loewenstein’s concepts consider any type of stimuli which may include negative changes. For a

comprehensive illustration of these processes consider figures 16.1 through 16.3 by Frederick and

Loewenstein (1999). 23

So far, rising aspirations were explained by comparing one’s present consumption levels to one’s

past consumption levels. A further explanation draws on social comparison where one compares one’s

own consumption levels to those of others. Social comparison is recognized as a major cause of

unhappiness (e.g., Brickman et al., 1971), but will not be further discussed here.

16

4.1.2 The Hedonic Treadmill

The preceding section has identified the decline of positive emotions and rise of

aspiration levels as drivers of hedonic adaptation which, over time, returns happiness

increases derived from consumption to baseline levels. Consequently, people

pursuing happiness through consumption are forced to consume more and more,

creating the present state of overconsumption without actually increasing happiness.

This infinite “cycle of acquisition and adaptation” (Chancellor/Lyubomirsky, 2011)

was termed hedonic treadmill by Brickman and Campbell (1971). An empirical

illustration of how this treadmill applies to the material consumption domain is

provided by Easterlin (2003) and focuses on rising aspirations:

Survey data from Roper Reports on American consumers in 1978 and 1994 included

information about their aspirations (wants) and respective attainment (haves).24

First,

participants were asked about what they wanted in life by identifying things which

they viewed as part of a good life from a list of 24 items. Among these, typical,

costly consumer goods included items like having a car, a home, a television set, a

swimming pool, and a vacation home. Next, participants stated which of the desired

items they had actually attained. Drawing on the life cycle approach, birth cohorts

were divided into an early, mid, and late life cycle to model the change of aspirations

and their attainment over an entire life cycle. Results show that over a lifetime,

people own more and more of their desired goods: Taking the mid life cycle as

example, people possessed averagely 2.5 out of 10 pricy consumer goods in the

beginning of this life cycle and 3.2 at its end (see Table 3).25 Technically, they are

better off and therefore, should be happier. However, people’s aspirations also rise:

The mean number of desired goods increased from 4.3 to 5.4 in the mid life cycle.

Notably, once initially desired material things are acquired, they elevate the reference

point of what constitutes a good life and people start to desire the initially undesired,

offsetting positive effects of material attainment on happiness.26

Crucially, the

increase in goods people already have is about as high as the increase in people’s

wants: Over the mid life cycle people owned on average 0.7 additional goods but

also wanted an additional 1.1. Over all three assessed life cycles people had on

24

The Roper Reports consist of large databases on US consumer trends, annually drawing information

from around 18,000 Americans aged 18 or older (GfK Custom Research North America, 01.01.2013). 25

The mid life cycle runs from ages between 30-44 years in 1978 to 45-59 years in 1994. 26

For example, common desires include a house and a car. Once these are fulfilled, people move on to

desire a swimming pool or a vacation home which at first were not as much regarded as part of the

good life.

17

average 0.8 more goods but also desired 1.0 more. This explains stagnant happiness

levels despite possessing more: People seem to completely adapt to their new

standard of living because aspiration levels increase about as much as the level of

progress made. Thus, hedonic adaptation to prior material attainment induces people

to want more which explains the current state of overconsumption and absent

happiness increases (Chancellor/Lyubomirsky, 2011; Sheldon/Lyubomirsky, 2012).

Brickman and Campbell (1971) already recognized the environmental problems

inherent to people’s futile attempts to overcome the hedonic treadmill by increasing

consumption. The authors acknowledged the impossibility of unlimited expansion of

production due to issues such as pollution and the finiteness of the planet’s natural

resources. Recalling chapter 3, the hedonic treadmill represents the costs of hedonic

adaptation not only to the individual but also to the environment

(Frederick/Loewenstein, 1999). Moreover, it seems that the hedonic treadmill may

take its place in the set-point theory, next to genetics, and challenge the initial

assumption that happiness can actually be altered in the long run (Brickman et al.,

1971; Lyubomirsky et al., 2005). Yet, this pessimistic view can be put into

perspective by a closer examination of the degree and speed of hedonic adaptation to

different domains in life.

4.1.3 Asymmetries in Hedonic Adaptation

A famous study most often cited to prove complete adaptation is the one mentioned

above (Brickman et al., 1978): One to eighteen months after the life changing win

lottery winners’ present mean happiness deviated insignificantly by + 0.18 from

controls (see Table 2). Furthermore, not only were lottery winners and controls

studied, but also 29 paralyzed accident victims who rated their present mean

happiness at 2.96 on a scale from 0 to 5. This counter intuitively high level of general

happiness (above the midpoint) is widely interpreted as evidence for strong

adaptation to devastating health events.

However, Frederick and Loewenstein (1999) suggest that hedonic adaptation applies

differently to specific life domains: Considering unfavorable experiences, people

adapt more to imprisonment and disabilities, but less to progressive, chronic diseases

or the loss of a loved one. For desirable experiences, people largely adapt to

increases in income but less to cosmetic surgery. With regards to noise (negative)

and food (positive), research suggests there is little to no adaptation and sometimes

18

even sensitization.27

Different researchers have tried to find a systematic

understanding for the domains to which hedonic adaptation occurs more or less:

Easterlin (2003) distinguished between pecuniary and non-pecuniary life domains

and examined the completeness of hedonic adaptation. The preceding section

presented his findings for the pecuniary domain, notably, that complete hedonic

adaptation occurs because people’s wants increase as much as their previous haves

have increased. For the non-pecuniary domain, Easterlin investigated the degree of

hedonic adaptation to health and marital status, again applying the life cycle

approach. This time, he used large scale, longitudinal data collected in the United

States GSS between 1972 and 2000, including samples up to 1,500 people per year.

By evaluating different birth cohorts in this 28-year span, again, an entire life cycle

was approximated. To examine health which naturally decreases with age, Easterlin

looked at self-reported health over an adult life span and suggested that the level of

self-reported health should be constant if complete adaptation applied to the decline.

However, the results show a clear and statistically significant downtrend in mean,

self-reported health throughout the life cycle which, indicates less than complete

adaptation to adverse health changes (see Figure 8).28

With regards to marriage,

people who are currently married constantly rate themselves as significantly happier

than those who are currently unmarried. This effect can be observed over the entire

adult life cycle (see Figure 9).29

Moreover, comparing different birth cohorts

indicates that happiness persists with marriage length: The cohort of 1951-1960

which has been married for an average of 10 years and the cohort of 1921-1930

which has been married for more than 35 years share similar mean happiness levels

between 2.0 and 2.1. Finally, within the unmarried, the widowed and divorced or

separated consistently report significantly less happiness over a life cycle than the

never married (Easterlin, 2003). Altogether, these results imply that adaptation both

to marriage as well as to its dissolution is incomplete. In general, hedonic adaptation

seems to be less complete in the non-pecuniary than pecuniary domain. Thus,

positive changes in the first may serve as lasting sources for happiness.

27

Sensitization describes an increase in affective intensity to a constant or repeated stimulus and thus,

constitutes the opposite process of hedonic adaptation (Frederick/Loewenstein, 1999). 28

See appendix for the specific question asked to elicit self-reported health. 29

Mean happiness within birth cohorts ranged from 1.9 to 2.2 for the married versus 1.6 to 1.8 for the

unmarried on a scale from “1 = not too happy” to “3 = very happy” (see chapter 2 for the exact

question used in the GSS).

19

More relevant to specific consumption choices, Nicolao and colleagues (2009)

investigated the speed of hedonic adaptation to material versus experiential

purchases: In a laboratory experiment, 355 students from the University of Texas at

Austin had to choose one of three available either material or experiential purchases.

Endowed with three lab dollars participants could buy, for example, pencils, a

keychain, or a little picture frame in the material purchase condition. In the

experiential, they could decide to purchase a video to watch, a song to listen to, or a

video game to play.30

After the purchases had been made, the students were asked to

rate their happiness with these at five different points in time: Directly after

consumption, seven minutes later, one day later, one week later, and two weeks

later.31

The first two ratings were conducted in the lab while the three latter ratings

were collected via Internet. As indicated by the significantly steeper slopes observed

in the material purchase condition (see part A of Figure 10), the findings of this

longitudinal experiment show that adaptation is more rapid to material than to

experiential purchases. This suggests that happiness can be pursued more effectively

by investing in intangible experiences rather than tangible possessions.

Finally, Frey and Stutzer (2008) provide further empirical evidence that the speed

and completeness of hedonic adaptation varies systematically across different goods

and activities. They categorize them as having relatively more extrinsic or intrinsic

attributes based on the different kinds of needs these goods satisfy: Extrinsic

attributes relate to desires for status, prestige, and fame whereas intrinsic attributes

satisfy inherent needs such as relatedness, competence, and autonomy. The authors

propose that hedonic adaptation occurs less to the consumption of intrinsic goods and

activities than to extrinsic ones. To test this hypothesis, they used longitudinal data

(from 1985 to 2003) of the German SOEP on self-reported life satisfaction, labor

income, and individual commuting time in a sample of full-time workers.32

Looking

at a period of three years, they find that adaptation to daily commuting is slower and

30

All options were actually priced at around $3.00 to ensure their comparability. 31

The following items were used to rate happiness on seven-point scales from “1 = not at all” to “4

= moderately” to “7 = very much”:

"When you think about this purchase, how happy does it make you?"

"How much does this purchase contribute to your happiness in life?"

"To what extent do you think the money spent on this purchase would have been better spent on

something else—some other type of purchase that would have made you happier?" 32

Life satisfaction was elicited with the item presented in the note on Figure 6. For the commuting

time, people were asked: “How long does it normally take you to go all the way from your home to

your place of work using the most direct route (one way only)?”

20

weaker than to a higher labor income (see Figure 11). Moreover, a slight

sensitization was associated with the time spent on commuting. Based on the idea

that longer commutes deprive people from satisfying intrinsic needs (such as

spending time with family and friends) and a higher income enabling the satisfaction

of more extrinsic desires (such as a higher standard of living), these results support

the notion that adaptation is likely to be stronger for extrinsic than intrinsic domains.

In conclusion, people would be better off if they resisted high salary work positions

which are assumed to involve long commutes and instead chose the averagely paid

job closer to home, consequently leaving more time to satisfy intrinsic needs.

Altogether, the findings above help explaining why purchasing and consuming more

seem to constitute a futile route to more happiness: As hedonic adaptation applies

more strongly to the pecuniary, material, and extrinsic domains, short term happiness

increases via consumption revert quickly and almost complete to baseline.

Consequently, materialists who typically concentrate on these domains are more

miserable than the average person who also considers the complementary domains:

The non-pecuniary, experiential, and intrinsic, which offer hope since hedonic

adaptation applies less rapidly and to a smaller extent to them.

4.1.4 Explaining Asymmetries in Hedonic Adaptation

After having reviewed various empirical evidence on asymmetries in hedonic

adaptation, this section provides a possible explanation for these findings. In

particular, Frederick and Loewenstein (1999) propose that evolutionary benefits

account for domain specific hedonic adaptation: Presumably, it makes sense not to

fully adapt to being hungry, thirsty, in pain, or sexually excited because these

hedonic states motivate people to meet survival relevant needs. Behaviors that satisfy

these, such as having food or sex, are said to be inherently or intrinsically pleasant.

That is, they are rewarding in themselves which works against hedonic adaptation.33

In this sense, the results of a cosmetic surgery may be viewed as directly satisfying

whereas a higher income or lottery win is typically used as means to other ends: It is

not rewarding in itself but needs to be spent on things which possibly are (such as

material possessions to gain status). In this sense, money can be viewed as rather

extrinsically satisfying which explains faster adaptation processes applying to it

33

Brickman and colleagues (1971) speak of “nonrelativistic elements”.

21

(Frey/Stutzer, 2008). This categorization of something being more intrinsically or

more extrinsically satisfying can be applied to the former distinction between

pecuniary and non-pecuniary life domains as well as between material and

experiential purchases:

In the pecuniary domain, Easterlin (2003) observed full adaptation to material

possessions as means to living the good life. The tendency of people wanting to have

more of them implies that what they already had was not inherently satisfying. Thus,

the pecuniary domain seems to constitute something more extrinsically satisfying.

Accordingly, the incomplete adaptation found for marriage (positive) and

deteriorating health (negative) in the non-pecuniary domain suggests this domain

holds strong intrinsic components: A happy marriage is likely to meet the intrinsic

need for relatedness and a declining health is very likely to forestall intrinsic needs

such as autonomy and competence (Frey/Stutzer, 2008). Moreover, the loss of a

loved one typically represents a loss in relatedness. Slow as well as incomplete

adaptation to this undesirable experience supports the link between the non-

pecuniary domain and intrinsic satisfaction. In the material versus experiential

domain, faster adaptation to material purchases suggests again that they are not

intrinsically rewarding. Instead, slower adaptation was observed for experiential

purchases which typically involve social interaction, fostering relatedness and

therefore, intrinsic satisfaction. Apart from relatedness, Nicolao and colleagues

(2009) propose that experiential purchases also meet other basic human needs.

In this sense, the pecuniary and material domains can be summed up in the

extrinsically satisfying domain (in short: extrinsic domain) and the non-pecuniary

and experiential domains in the intrinsically satisfying domain (intrinsic domain).

Overall, the evidence above is supportive of hedonic adaptation applying faster and

more completely to the extrinsic than the intrinsic domain. In other words, happiness

derived from the former does not last as long as happiness derived from the latter.

Thus, it seems more promising to pursue happiness through the intrinsic domain. But

why do people choose the less promising path to happiness by deciding to consume

more?

22

4.2 How Hedonic Adaptation Drives Affective Forecasting Errors

Affective forecasting serves to estimate the post decision experienced utility of given

options. Two challenges which people encounter hereby are that they need to

anticipate hedonic adaptation to generally occur over time and, in particular, the

speed and extent to which it will occur. Various sources (e.g., Stutzer/Frey, 2006)

and the vicious circle described in chapter 3 suggest that people either neglect

adaptation completely or anticipate it only insufficiently.

The first challenge is illustrated by an undergraduate study cited by Kahneman

(2000) in which 362 adults were asked to estimate the moods of different categories

of people, among them lottery winners and paraplegics. Half of the sample had to

assume that the life changing event had occurred one month ago, the other half was

told that the change had happened one year ago. Results showed almost equal

forecasts for the different time conditions: Paraplegics were expected to be about as

miserable and lottery winners to be about as happy after one month as well as after

one year had passed since the accident or the lottery win. These estimates clearly

ignore adaptation and this ignorance may be explained by the so called transition

rule: When making forecasts about the well-being effects of a state (being a lottery

winner) people typically focus on how the transition to that state (winning the lottery)

will feel like. Consequently, the duration of emotions evoked by the transition is

exaggerated and adaptation in the long run is neglected (Kahneman, 1999; 2000).

The same heuristic may apply to purchasing decisions when people focus on how

much happier acquiring a product will make them feel as opposed to possessing it.

Underestimating adaptation to future possessions results in an overvaluation of the

benefits of the acquisition at the time of decision making. In the end, actual

happiness (experienced utility) derived from the purchase will be lower than

expected (predicted utility). In this sense, affective forecasting errors materialize in a

different ex ante and ex post utility valuation of choice alternatives, which results in

non-utility maximizing outcomes (Frey/Stutzer, 2008; Stutzer/Frey, 2006;

Welsch/Kühling, 2010). Notably, learning from such experiences seems to be

problematic since predicted utility tends to be (falsely) remembered as being similar

to experienced utility (Loewenstein/Schkade, 1999; Wilson/Gilbert, 2003).

The second challenge of predicting the speed and degree of hedonic adaptation is

largely influenced by the domain-related asymmetries found in hedonic adaptation. It

23

is not surprising that they carry forward to equivalent asymmetries in the accuracy of

affective forecasts (see Figure 3): When people adapt faster to extrinsic domains

(e.g., material purchases) in t1 and t2, but do not predict this adaptation in t0, they are

likely to overvalue the utility derived from them. Similarly, when people fail to

acknowledge that adaptation to intrinsic domains (e.g., experiential purchases) in t1

and t2 is weaker, they undervalue goods and activities serving intrinsic needs when

making affective forecasts in t0. Consequently, people systematically over-consume

extrinsic goods and under-invest in intrinsic ones (Frey/Stutzer, 2008; Stutzer/Frey,

2006). Importantly, choices seem to be distorted towards reducing happiness since,

for example, experiential purchases lead to more reported happiness than material

purchases (Nicolao et al., 2009). Hence, even when people anticipate the occurrence

of hedonic adaptation, they do not always choose what maximizes their happiness

because of distorted forecasts: Their own predictions are biased towards choosing the

things to which they will adapt quickly (thus, receive less happiness) because this

adaptation is not foreseen. Accordingly, things to which they would actually adapt

more slowly (thus, receive more happiness) are undervalued and not chosen.

Notably, asymmetric hedonic adaptation accounts for systematic instead of just

random utility misprediction as some domains are more affected than others.

Furthermore, the extrinsic domain seems to be liable to larger affective forecasting

errors due to unanticipated stronger adaptation applying to it. Therefore, it seems

only logical that people placing more importance on the extrinsic domain (e.g.,

Figure 3: Asymmetric Hedonic Adaptation and Systematic Utility Misprediction

(own graph based on Frey/Stutzer, 2008; Welsch/Kühling, 2010)

= Undervaluation

Predicted Utility Experienced Utility ≠

Asymmetric

Hedonic

Adaptation

Extrinsic

Intrinsic Intrinsic

Extrinsic

Not Anticipated!

t0 t1 t2

= Overvaluation

Extrinsic

Pecuniary

Material

Systematic

Utility

Misprediction

Intrinsic

Non-pecuniary

Experiential

24

materialists) are likely to arrive at greater distorted choices (Frey/Stutzer, 2008;

Stutzer/Frey, 2006; Welsch/Kühling, 2010). Research by Sheldon and colleagues

(2010) supports that people holding a relatively more extrinsic as opposed to intrinsic

value orientation are prone to overvaluing extrinsic domains which may explain why

they are less happy. In summary, unpredicted asymmetries in hedonic adaptation

create an unhealthy imbalance in the valuation of goods, driving people to work and

consume more as their own happiness diminishes and the planet suffers.

5 A Path to Happiness and Sustainability

Some empirical evidence suggests that there are similar asymmetries in the valuation

of choices relevant to sustainability:

Taking up on the commuting study (Frey/Stutzer, 2008), the overvaluation of a

higher labor income due to unanticipated faster adaptation to it induces people to

commute longer than optimal. From an environmental perspective, more commuting

harms the planet since, for example, it contributes to more CO2 emissions through

the use of cars. In this sense, the distorted evaluation of the benefits of a higher

income involving longer commutes (opposed to a lower income demanding shorter

commutes) is both damaging individual happiness as well as the planet.

Regarding particular consumption choices, Welsch and Kühling (2010) suggest that

asymmetric hedonic adaptation accounts for a bias in deciding between

environmental-friendly and ordinary consumption. They attribute the first to the

intrinsic and the latter to the extrinsic domain. Thus, benefits derived from more

ordinary consumption tend to be overvalued ex ante as faster adaptation to it is

unforeseen. Consequently, consumption choices are biased towards choosing more

ordinary consumption and less of the undervalued environmental-friendly

consumption, yielding non-utility-maximizing choices. These ideas are formalized in

a theoretical model which illustrates a utility trade-off between the quantity of

(ordinary) consumption and the quality of (environmental-friendly) consumption,

given a budget constraint and the assumption that higher quality is more expensive.

In line with standard microeconomics, utility is maximized if the net marginal utility

25

from quality is zero.34

Using World Values Survey data on 23,623 individuals across

27 countries between 1994 and 1999, Welsch and Kühling empirically test their

hypothesis of less than individually optimal environmental-friendly consumption.

Self-reported life satisfaction was collected with the item introduced in chapter 2 and

environmental-friendly consumption consisted of three self-reported behaviors: The

usage of green products, recycling, and saving water.35

Results show a positive and

significant relationship between life satisfaction and each of the three pro-

environmental behaviors as well as their composite index, indicating that more

environmental-friendly consumption would make people happier.36

Hence, people

currently seem to consume less environmentally-friendly than optimal. Moreover,

Welsch and Kühling replicate the finding that materialists are prone to larger choice

distortions. This is important, because they constituted almost two thirds of the large

sample, implying that the majority of people choose to the disadvantage of

themselves and the environment because they underestimate the positive effects of

engaging in environmental-friendly consumption. Lastly, Welsch and Kühling show

that a higher general education and familiarity with pro-environmental consumption

can reduce choice distortions.

More empirical evidence for positive associations between sustainable behaviors and

happiness comes from several studies grounded in psychology:

Corral-Verdugo and colleagues (2011) asked 606 students in a middle-sized Mexican

city to report how much they engage in pro-ecological, frugal, altruistic, and

equitable behaviors as well as to rate their happiness. The four elicited behaviors are

regarded as sustainability-relevant in the environmental psychology literature and

were aggregated to form a higher order factor named “sustainable behavior”.

Findings show a positive and significant relationship between happiness and the

composite factor as well as three of the individual behaviors.

Similarly, Brown and Kasser (2005) collected happiness ratings and self-reports on

the frequency of ten ecologically responsible behaviors (ERBs) from 206 American

34

In other words, the additional utility derived from higher quality should equal the additional

disutility of quantity foregone. 35

In particular, the WVS asked: “Which, if any, of these things have you done in the last 12 months,

out of concern for the environment?

Have you chosen household products that you think are better for the environment?

Have you decided for environmental reasons to reuse or recycle something rather than throw it away?

Have you tried to reduce water consumption for environmental reasons?”

Answers were given on a scale from “0 = have not” to “1 = have done”. 36

The results are robust to controlling for nationality, demographics, and pro-environmental attitudes.

26

middle and high school students and find a significant, positive correlation between

happiness and ERB. Furthermore, they assessed extrinsic (via materialism) and

intrinsic values (via generosity) and replicated the results presented in chapter 3,

namely that extrinsic values are negatively associated with happiness and ERB. More

importantly, intrinsic values are positively associated with happiness and ERB and

explain the positive relation between happiness and ERB. These findings were

extended to an American adult sample consisting of 200 self-identified voluntary

simplifiers and 200 matched mainstream individuals, using different measures of

SWB and ERB. Results show that voluntary simplifiers are relatively more

intrinsically oriented, report more positive affect and life satisfaction, have smaller

Ecological Footprints, and spend more time on environmental behaviors. Notably,

the importance of intrinsic values to ERB may confirm that the latter belongs to the

intrinsic domain as suggested by Welsch and Kühling (2010).

There are several downsides to the above studies: The items for eliciting happiness

did not always precede the items for sustainable behavior (e.g., Welsch/Kühling,

2010) which may have influenced responses to the happiness item (Kahneman,

1999). Moreover, all studies relied on self-reported behavior which does not

necessarily indicate actual behavior. Lastly, correlations do not describe the direction

of causality: It is unclear whether happiness results from sustainable behavior or

whether it drives it, or possibly both (Corral-Verdugo et al., 2011). The next

experimental study conducted by Nisbet and Zelenski (2011) solves some of these

issues and revisits the topic of affective forecasting:

The aim was to examine how much happiness students derive from walking outdoors

in nearby nature (versus indoors) and how capable they are in forecasting these

effects. In a between-subjects design, 150 Carleton University students were

randomly assigned to be either a forecaster or an experiencer and to walk either an

outdoor route next to a canal or indoors using the campus tunnel system.37

First, all

participants received descriptions of their respective walking routes. Then,

forecasters should predict how they will feel after having walked outside or inside

before they departed. Next, everyone went on their walks and experiencers were

asked about their present feelings right after having returned. Affect was measured

37

Both routes took about 17 minutes to walk and were rated as equally familiar by an independent

sample (N = 198) to make sure that predictions would be made on comparable bases. Furthermore,

walks were done on days without rain at an average temperature of 10°C.

27

using a slightly modified PANAS (see Questionnaire 3). Results show that more

positive affect (3.26 versus 2.41) and less negative affect (1.34 versus 1.60) was

reported by experiencers who walked outside than by those who walked indoors.

More interestingly, outdoor forecasters predicted less positive affect (2.89 versus

3.26) and indoor forecasters more positive affect (2.56 versus 2.41, see Figure 12)

than experiencers actually reported. These findings were replicated with different

walking routes in a within-subject design (N = 80) where the same person is

forecaster and experiencer.38

Overall results indicate that when making predictions,

participants overestimate enjoyment from walking indoors and underestimate

enjoyment from walking outdoors, leading to an overvaluation of the indoor route.39

To the extent that people act on their predictions, they would have miswanted to their

own disadvantage since walking outside has proven to create more positive affect

and thus, more happiness. This research is important for sustainability because if

people accurately predicted the benefits of being in nature they, eventually, would

care more about its preservation, both raising their individual happiness and saving

the planet. Yet, people’s apparent inability to learn from the past is likely to

constitute an obstacle to this.

Finally, in terms of conservation psychologist Raymond de Young, happiness would

belong to intrinsic satisfactions, “the underappreciated intangible but positive

payoffs” (De Young, 1996) inherent to ERBs.40

This notion is supported by

altogether 13 studies conducted between 1983 and 1999 using questionnaires on

intrinsic satisfactions and ERBs such as recycling, source reduction, and water

conservation.41

Sample sizes ranged from 72 to 3,705 participants, among them not

only students but mostly adults across the United States, Canada, Taiwan, and

Norway (for overviews, see De Young, 1996; 2000). The results indicate that people

derive immediate, personal satisfaction from living a frugal lifestyle and participating

38

One problem inherent to within-subject designs is that the prediction itself may influence the

experience as attention is focused on it. The between-subject design resolves this issue. Yet, in this

research design prediction errors can only be approximated since forecaster and experiencer are not

the same person. For more information about research designs see Loewenstein and Schkade (1999). 39

Note that over- and undervaluation are not explicitly linked to hedonic adaptation in these studies.

However, one can imagine that walking through the ever same tunnels gets boring pretty quickly and

that walking outdoors provides more new stimuli which revive the experience every time. 40

The benefits of ERBs being “underappreciated” aligns with the general idea that ERBs are

systematically undervalued and thus, not chosen. 41

Source reduction refers to reusing things within the household in a do-it-yourself manner which

reduces the purchase of new goods. In contrast, recycling typically involves community services and

has no direct effect on household consumption (De Young, 1985-86).

28

in meaningful activities that make a difference in the long run, aspects central to

ERBs. Moreover, these elicited intrinsic satisfactions are positively associated with

self-reported ERBs, suggesting that these are intrinsically satisfying. This further

supports the idea that sustainable behaviors fall under the intrinsic domain, which has

shown to be the more promising path to lasting happiness. Lastly, more intrinsic

satisfaction is associated with more intrinsic motivation (De Young, 1985-86). This

supports the intuition that something intrinsically satisfying is very likely to also be

intrinsically motivating. Thus, happiness derived from acting sustainably could

establish a positive reinforcement for more sustainable behavior (Corral-Verdugo et

al., 2011), eventually leading to more happiness (as one engages in the intrinsically

satisfying behavior) and more sustainability.

The findings above might pave the way for an upward spiral which is summarized in

Figure 4: People could maintain or even reduce their consumption levels as they

engage in ERBs (such as recycling and reusing) and gain happiness from doing so

(1). At the same time, the happiness derived from ERBs is likely to motivate people

to engage in more ERBs (2). Needless to say, ERBs leading to reduced consumption

would enhance the sustainability of the planet (3) which in turn could make people

happier (4) since, for example, a higher air and water quality improves outdoor

experiences. Contradicting a pervasive view that sustainable behavior demands

sacrifice and restraint, which ultimately reduce happiness, this upward spiral

proposes that happiness and sustainability indeed can be reconciled (Brown/Kasser,

2005).

Figure 4: Upward Spiral of Consumption, Happiness, and Sustainability

(own graph based on Figure 2)

Consumption → ↓

(via ERBs)

Happiness ↑

Sustainability ↑

(1)

(2)

(3) (4)

29

6 Conclusion

Based on the assumptions that happiness is important and can be increased, this

paper started out with the question of whether people know and choose what will

make them happy. The rational, utility-maximizing individual assumed in standard

economic theory is expected to succeed in pursuing happiness. Yet, in the face of

decade-long, stagnant happiness levels, the revealed preference for consumption

might constitute an erroneous belief that “‘the goods life’ is the path to ‘the good

life’” (Kasser, 2006). This error could be explained with the apparent human

inability to predict how much happiness will actually be derived from consumption.

One cause of such affective forecasting errors is underestimating hedonic adaptation

to consumption, which results in an overestimation of the benefits to consume. Thus,

people believe they will receive more happiness from consuming than they actually

do. Since learning from this experience appears to be rather difficult, humankind

seems to be trapped in a futile pursuit of happiness. Eventually, this trap could

endanger the survival of life on earth as human consumption has detrimental effects

on the planet (De Young, 1996; Winter, 2004).

To escape from this trap, it seems crucial that people realize the far reaching impact

their daily consumption choices have, without actually increasing happiness

(O’Brien, 2008). Furthermore, recognizing that happiness and sustainability may be

complementary pursuits could foster a change in behavior: As proposed in the last

chapter, happiness might constitute both a positive consequence as well as an

antecedent of sustainable behavior (Corral-Verdugo et al., 2011). This reconciliation

of happiness and sustainability on the individual level can also be found on a macro-

level: The Happy Planet Index (HPI) assesses human well-being in relation to

ecological well-being on a country by country basis (NEF, 2012). In 2012, Costa

Rica ranked first, reporting more happiness and longer lives than the United States

did, while at the same time, presenting an Ecological Footprint almost three times

smaller than the United States’ (which ranked 105th

out of 151 countries in the HPI).

This illustrates on a global level that “good lives do not have to cost the Earth”

(NEF, 2012). In this sense, the goal driving human behavior may be extended from

happiness to sustainable happiness, which is “the pursuit of happiness that does not

exploit other people, the environment or future generations.” (O’Brien, 2008).

30

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37

8 Appendix

Table 1: Importance of Subjective Well-Being to College Students

(Diener, 2000)

38

Questionnaire 1: The Subjective Happiness Scale

(Lyubomirsky/Lepper, 1999)

Instructions to participants: For each of the following statements and/or questions,

please circle the point on the scale that you feel is most appropriate in describing

you.

1. In general, I consider myself:

1 2 3 4 5 6 7

not a very

a very happy

happy person

person

2. Compared to most of my peers, I consider myself:

1 2 3 4 5 6 7

less more

happy happy

3. Some people are generally very happy. They enjoy life regardless of what is

going on, getting the most out of everything. To what extent does this

characterization describe you?

1 2 3 4 5 6 7

not at a great

all deal

4. Some people are generally not very happy. Although they are not depressed,

they never seem as happy as they might be. To what extend does this

characterization describe you?

1 2 3 4 5 6 7

not at a great

all deal

39

Questionnaire 2: The Satisfaction With Life Scale

(Pavot/Diener, 1993)

Below are five statements with which you may agree or disagree. Using the 1-7 scale

below, indicate your agreement with each item by placing the appropriate number on

the line preceding that item. Please be open and honest in your responding. The 7-

point scale is as follows:

1 = strongly disagree

2 = disagree

3 = slightly disagree

4 = neither agree nor disagree

5 = slightly agree

6 = agree

7 = strongly agree

__ 1. In most ways my life is close to my ideal.

__ 2. The conditions of my life are excellent.

__ 3. I am satisfied with my life.

__ 4. So far I have gotten the important things I want in life.

__ 5. If I could live my life over, I would change almost nothing.

40

Questionnaire 3: The Positive and Negative Affect Schedule

(Watson et al., 1988)

This scale consists of a number of words that describe different feelings and

emotions. Read each item and then mark the appropriate answer in the space next to

that word. Indicate to what extent [INSERT APPROPRIATE TIME

INSTRUCTIONS HERE]. Use the following scale to record your answers.

1 2 3 4 5

very slightly a little moderately quite a bit extremely

or not at all

_______interested _______irritable

_______distressed _______alert

_______excited _______ashamed

_______upset _______inspired

_______strong _______nervous

_______guilty _______determined

_______scared _______attentive

_______hostile _______jittery

_______enthusiastic _______active

_______proud _______afraid

We have used PANAS with the following time instructions:

Moment (you feel this way right now, that is, at the present moment)

Today (you have felt this way today)

Past few days (you have felt this way during the past few days)

Week (you have felt this way during the past week)

Past few weeks (you have felt this way during the past few weeks)

Year (you have felt this way during the past year)

General (you generally feel this way, that is, how you feel on the

average)

41

Figure 5: Reported Happiness Over Time in the United States

(Layard et al., 2010)

Annually, the American Institute of Public Opinion (AIPO) asks around 1,900

people: “In general, how happy would you say you are – very happy, fairly happy, or

not too happy?” Answers are scaled from “very happy = 10” to “not too happy = 0”

and all others are equally spaced in between. The National Opinion Research Center

(NORC) surveys about 1,400 people per year, using the same happiness question as

the General Social Survey (GSS, see chapter 2). The GSS’s average sample size each

year is 1,950.

42

Figure 6: Reported Life Satisfaction Over Time in West Germany

(Layard et al., 2012; based on Layard et al., 2010)

For the question used in the Eurobarometer surveys see chapter 2. The average

sample size includes 1,000 to 2,000 people per year. The German Socio Economic

Panel (SOEP) questions around 20,000 people annually (SOEP, 05.01.2013) and

ends each survey by asking: “In conclusion we would like to ask you about your

satisfaction with your life in general. Please answer according to the following

scale: 0 means completely dissatisfied and 10 means completely satisfied. How

satisfied are you with your life, all things considered?” (Layard et al., 2010). This

item relates closely to the one used by the World Values Survey (see chapter 2).

43

Table 2: Mean Happiness Ratings by Lottery Winners and Accident Victims

(Brickman et al., 1978; excerpt of table 1)

44

Figure 7: Trends in Ecological Footprint and Biocapacity per Person

(WWF, 2012)

45

Table 3: Ownership of and Desires of Costly Consumer Goods

(Easterlin, 2003)

46

Figure 8: Mean Self-Reported Health

(Easterlin, 2003)

Self-reported health was obtained by asking: “Would you say your own health, in

general, is excellent, good, fair, or poor?” Answers were scaled from “excellent =

4” to “poor = 1” to calculate the mean scores.

47

Figure 9: Mean Happiness of Currently Married and Unmarried Females

(Easterlin, 2003)

The pattern for males is similar.

48

Figure 10: Speed of Hedonic Adaptation to Material and Experiential Purchases

(Nicolao et al., 2009)

The focus here is on set points 6 and 7 which constitute purchases that increased

happiness to a great extent. The steeper decline of happiness over time for material

purchases (A) hints at faster hedonic adaptation. Set points 1 and 2 describe

purchases that had little effects on happiness and are therefore not further discussed.

49

Figure 11: Hedonic Adaptation to Commuting and Labor Income

(Frey/Stutzer, 2008)

50

Figure 12: Forecasted and Experienced Positive Affect by Walking Route

(Nisbet/Zelenski, 2011)