The Hedonic Treadmill

If someone gave you a brand new powerboat would you rather live Florida or New York? Most of us would say Florida because we would get to enjoy it more often. The months of use in Florida would make the boat more “valuable” to us than the month or two the boat would be useful in NY. When you think of getting a “good deal” what are the first things to come to mind?

To me I think of getting as much “value” out of a purchase as possible. This includes things such as how often I will use it, the price I paid for the product, and how long lasting the item is expected to be. The more use I will get out of the purchase and more long lasting it is, combined with as low of a price as possible, creates as much “value” as possible. Obviously other things such as sentimental value, resale value, or other factors come into play as well, but the general idea is the more valuable to me a purchase is the happier I expect to be with it. This, according to some researches, may not be the case however, due to a phenomenon known as the hedonic treadmill.

According to dictionary.com the concept of the hedonic treadmill refers to the nature of humans to adapt to bad and good circumstances, eventually returning to a relatively neutral state. In other words, if we are around a situation for a prolonged period of time we will become numb to it, returning to a steady state of more neutral emotions. Obviously the length of time over which this occurs depends on the circumstances and the people involved in them, but the general principle largely holds true for all humans. This trait can actually be a very useful tool in tough situations, such as when people are in war or extreme poverty. It helps us deal and cope with the situations we find ourselves in when they are extremely negative. Facing these harsh conditions is much easier with a neutral mindset because we become used to them and they do not seem as negative anymore. Instead, they are typical circumstances that we adapted to. In other words, the idea of the hedonic treadmill points towards that idea that we are destined to always relatively have the same level of happiness.

This is also applicable when it comes to more superficial circumstances: such as our stuff. Somewhat counterintuitive, the principle of the hedonic treadmill argues that it should actually be the things that we do not enjoy as often which bring us the most happiness. Those items that we do not use as often, such as boats, seasonal equipment, even vacations, should be more enjoyable for us because we do not enjoy them as often. They are breaks from our normalcy, making them stand out and bringing us more joy and happiness. While this is very different than the “value” mindset discussed earlier, this idea may hold some water. Think about it, if you had to pick a vacation for example that stands out as one of the most enjoyable vacations you took it is often the one that is most different from any other vacations you and your family usually take. For example, a trip to another country will likely stand out in your mind as a vacation that brought you immense happiness when the usual vacation your family takes is going to a beach a couple hours away. The same is true for our physical stuff claims behavioral finance expert Dan Ariely. He points out that we do not get more enjoyment out of the things we own because we get used to the increased standard of living that they bring into our lives. Ariely gives a great in his article in Money Magazine; something he purchased that brought him a lot of happiness was his convertible because he lived in Boston. While someone in South Beach Miami or Los Angeles quickly gets used to driving around with the top down, Boston, MA only provides a few windows of opportunity to really enjoy that feature.

The takeaway from the hedonic treadmill is actually quite simple. While it is important to make purchases that make “value” for the future, we should occasionally allow ourselves to make a purchase that is not something we will get to use every day. Keeping a smart budget and savings plan is important, but it may end up being one of these nonsense purchases that becomes of the most enjoyable decisions you make in a long time. So before you pay for the slightly larger TV or model phone that is one year newer, take a hard look at some other things you could spend your money on that might bring a little more happiness into your life.

Stephen Padgett

Stephen Padgett

Stephen Padgett is a current junior at the University of North Carolina at Chapel Hill. He is working toward a BA in Economics and Political Science and plans on graduating early in December of 2012. Although he does not know what he wants to do for his career, he is looking forward to an opportunity with Credit Suisse’s Operations Team this summer in Raleigh.

Financially Stephen grew up in a family that preached saving and living below your means. That, in part, translated to his interest in Economics, especially how economics can affect individuals’ financial lives. Through his financial markets class in the fall of 2011, he furthered this interest by analyzing macroeconomic events. Stephen believes that finance, personal finance in particular, is a subject severely left out when it comes to public schooling in this country, and it is a problem that has manifested itself and contributed to many of the problems seen today. He also believes that education is the key to improvement and hopes that through his writings he will be able help people learn about finance, macroeconomics, and how to be financially savvy for the future.

In his free time Stephen enjoys playing and watching sports, wakeboarding, sailing, and country music. At UNC he has participated in Strive for College, UNC Dance Marathon, and UNC Relay for Life.
Stephen Padgett

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