Psychology of happiness 2: If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right

Continuing the research notes from the previous post, here is a summary If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right by Elizabeth W. Dunn et al. The author re-published this research in the book Happy Money.

My main qualm about the paper is, that it does not differentiate between the remembering vs. experiencing self distinction, so the advises are a tangle of both.


  • you want to:
    1. extend anticipation before
    2. diminish adaptation during
      • by making events smaller but more frequent
      • by introducing some uncertainty
    3. Prefer experiences to material goods
      • more reminiscence after
      • less externalities/secondary costs
    4. Make everything social
      • spend prosocially
      • share experiences


(1) Buy more experiences and fewer material goods

  • Advantages:
    • more anticipation before event, less adaptation during, more reminiscing after
      • reasons:
        • material goods more prone to focalism: you actually don’t think about them very often and therefore don’t get that much utils/hedons
        • material goods usually have more secondary effects, externalities, upkeep costs
      • experiences DO suffer from focalism too: how often do you reminiscence about your vacations – not much, but more than about your fancy hardwood floor
    • negative experiences are easier to forget (or turn to humor)
    • experiences are more often social
  • note: remember the trade-off between remembering / experiencing self

(2) Use their money to benefit others rather than themselves

  • prosocial spending

(3) Buy many small pleasures rather than fewer large ones

  • less adaptation and diminishing marginal utility
  • due duration neglect, higher frequency > longer duration
  • splitting facilitates anticipation
  • Example: massage chair
    • customers got either 180s massage or 2x 80s
    • the split experience was rated higher
  • Exploiting uncertainty
    • having surprises / some uncertainty about the reward increases anticipation (you think about it more due to uncertainty)
    • also diminishes adaptation because you don’t know what’s next what’s

(4) Eschew extended warranties and other forms of overpriced insurance

  • exploit loss aversion and endowment effect

(5) Delay consumption

  • pay upfront to remove sting, delay consumption for anticipation

(6) Consider how peripheral features of their purchases may affect their day-to-day lives

  • especially material goods have upkeep costs, secondary effects & externalities

(7) Beware of comparison shopping

  • it focuses you of easily comparable features
  • e.g. picking a flat: lots of parameters on the web comparison, but you don’t e.g. how is the community, atmosphere etc.

(8) Follow the Herd Instead Of Your Head

  • general ranking is usually a good estimate of your enjoyment, no need to over think it

Psychology of happiness 1: Notes on Kahneman’s work

Below are my research notes based on:

  1. Chapter 5 of Thinking, Fast and Slow, by Daniel Kahneman
  2. Living, and thinking about it: Two perspectives on life, by Daniel Kahneman & Jason Riis
  3. Experienced Utility and Objective Happiness: A Moment-Based Approach, by Daniel Kahneman

For a quick overview see also Kahneman’s TED talk.

Experiencing vs. Remembering Self

  • Remembering Self
    • “Overall how would satisfied are you with your life?”
      • connected to decision utility (“wantability”, one used in economics)
      • focus of most of the well-being, life satisfaction literature
      • also called: (overall) life satisfaction
      • domain of System 2
        • but hampered by:
          1. Peak/end effect
          2. focusing illusion
          3. can be affected by recent emotional effects
            • e.g. availability heuristic, current affect, recency bias
          4. Culture can play a role in different effect (France vs. US)
  • Experiencing Self
    • “How happy/satisfied do you feel right know at this moment?”
    • connected to “hedonic” utility (how “good” you feel)
    • measured by: real-time sampling, or detailed day reconstruction
    • also called: “U-index” (fraction of time spend in negative emotional state)
    • Example of sampling results – U-index was:
      • 29% for the morning commute,
      • 27% for work,
      • 24% for child care,
      • 18% for housework,
      • 12% for socializing,
      • 12% for TV watching,
      • 5% for sex.
  • Trade-of between selves
    • Kahneman’s initial vs. current position:
      • initial: experiencing self is more relevant, “live in the moment”
      • current: need to take care of both of them
    • what changed his mind:
      • Coherent definition of well-being needs to take into account our goals (preferences) which in turn do have impact on life-satisfaction
    • Effect of Goals
      • ask students how much they value money
      • follow-up in 20 years
      • those who value more, earn more (even housewives!)
      • those who earn more & value more are more satisfied than those that earn less & value more

Remembering vs. experiential well-being – impact on policies

  • policies especially medicine and welfare:
    • E.g. investment that should be made in the treatment of e.g. blindness:
    • Should the investments be determined by how much people fear these conditions?
      • => Focusing illusion (Seeing)
    • Should investments be guided by the suffering that patients actually experience?
      • => Ignores preferences (there is not much difference in experiential happiness between blind and seeing)
    • Or should they follow the intensity of the patients’ desire to be relieved from their condition?
      • => Focusing illusion (Blind)
  • Should a policy make people experientially better of even if it is “remembered” as worse
  • Should a policy make people miserable so that they remember it as more positive
    • concrete example: colonoscopy experiment / cold water experiment
  • Remembering-self has a stronger saying in deliberate decision making (picking holidays, or treatment procedure), but not always (hyperbolic discounting)

Patient A suffers less (experiencing self), but rates the procedure worse than Patient B. If given choice to repeat the procedure, the option B is preferred – i.e. more suffering. Should a policymaker comply? I was always saying, life is like a colonoscopy.

Happiness Puzzles

  • Marriage Satisfaction
    • this is effect on remembering: around marriage you are likely to recall it and include it in the overall eval
    • effect on experiential well-being: neutral, it just redistributes (less positive time with friends, more chores, but more positive time with partner)


    Show this to your husband/wife for an awkward conversation.

  • Genetics
    • on both the remembering and experiential self has a major effect
  • France vs. US
    • france reports well-being on the level of unemployed americans
    • experiential well-being turns out to be: about same level
    • “Culture” has a large effect on the reporting
  • Income
    • experiential well-being plateaus at ~75k annual family income
    • remembering-self well-being continues to grow
    • Summary plot from Kahneman & Deaton 2010:


  • Holidays
    • you plan holidays for remembering self, not experiencing self
    • e.g.:
      • spend 10 days in Baltic seeing billion things
      • spend 30 mins / year fondly remembering and 30 mins / year reviewing photos (I’m supper generous here)
      • for that you “tortured” your experiencing self
        • of course it is not only about pure hedons, point is that remembering self if strongly overweighted in decision making
    • Thought Experiment
      • money/time is not an issue, you can go for 10 days wherever and do whatever
      • afterwards your memory will be wiped and photos deleted
      • will you plan a different kind of holiday?

Peak/end effect

  • best predictor for remembering self: average between the peak and the end satisfaction / pain
  • duration has next to no impact
  • “horrible noise at the end of record destroyed the whole experience”

Focusing illusion = focalism

  • “Nothing in life is as important as you think it is when you are thinking about it.”
  • E.g. buying a fancy car
    • How happy will it make me? very!
    • When does it make me happy? When I think about it
    • How often will you think about it? Actually not much!
  • famous experiment:
    • California vs. Ohio Weather
    • quadriplegic (ask people how happy they think they are 1/2 years after, people will overestimate their unhappiness because they focus on thinking about their disability)

Affective forecasting and miswanting

Affective forecasting
predicting emotional effects of future events or things

  • we are terrible at it (focalism, impact bias etc.)


wanting out of biased reason, due to failure of affective forecasting

Hedonic vs. Aspirational adaptation

  • Example
    • you were poor, ate crappy food, enjoyment ranked 5/10 (remembering self)
    • you get rich, you eat great food, time passes, you rank food again 5/10 (remembering self)
  • Hedonic treadmill / adaptation
    • you get used to the recent standard and revert to your set point
    • it means: you actually enjoy (experiencing self) less the better food
  • Aspirational adaptation
    • instead: we have aspirational set-point: somewhere between the base happiness and best-hope outcome
    • with time this baseline adjust higher, but not necessarily the overall enjoyment
      • I.e. experienced self-would rank the food 9/10 (i.e. no real hedonic adaptation), but the remembering self says 5/10 due to aspirational adaptation
  • Summary
    • it is likely that both occur
    • hedonic adaptation is important, but can be established only by sampling experiencing self not remembering self
    • conditions do matter to the experiencing self
      • better food IS better even if you have it every day
      • better city IS better even after longer time
    • but for remembering self the difference becomes invisible

Few notes on crony beliefs

Kevin Simler at Melting Asphalt recently published a very nice summary post – Crony Beliefs. Building on the evo-psych work of Trivers, Haidt and Kurzban he distinguishes between two types of beliefs (“employees”):

  • Meritocratic Beliefs
    • beliefs that are entertained because of their epistemic value, i.e. beliefs that pay their rent in accurate predictions about the world
  • Crony Beliefs
    • beliefs that are not accurate representations of reality, but are kept around because of social value and signaling purposes

The important thing to understand is that Crony Beliefs pay rent too – but not in accurate predictions, but rather as entry and maintenance costs of social bonds.

This observation fits very well with the “bleeding-heart” approach to cognitive biases: while our reasoning is deeply flawed, most heuristics are understandable from the evolutionary point of view, actually work quite often (especially in the simpler ancestral environments) and, as Kevin adds, can even provide a lot of utility, albeit non-epistemic.

There are only few (minor) things I’d like to add to this picture.

Break-downs of meritocracy still exists

From Kevin:

I, for one, typically explain my own misbeliefs (as well as those I see in others) as rationality errors, breakdowns of the meritocracy. But what I’m arguing here is that most of these misbeliefs are features, not bugs. What looks like a market failure is actually crony capitalism. What looks like irrationality is actually streamlined epistemic corruption.

My feeling is that despite this, true meritocracy breakdowns are still more common than true crony beliefs. While there are a LOT of social biases (authority bias, bias from social desirability, conformity bias, groupthink etc.), I think still most of the biases are simply heuristics extrapolating too far & breaking down, i.e. providing neither epistemic nor social value.

Bounded-rationality, compartmenalization and reflective equilibrium

AND ON TOP of that we have a bunch of beliefs that don’t have any causal links leading outside of our skulls, and beliefs that we have, but kind-of-sort-of don’t really know if they are useful in any way, because the slow combine-harvester of System 2 (or some other possibly non-conscious process) didn’t yet mowed over the belief and “decided” to integrate it, throw it away, or leave around unattached.


I’d really like to learn more about how this bounded belief examination and integration works.

Mindsets vs. beliefs

Finally a point that Julia Galef raised: beliefs are possibly not quite stable and the same metaphor could be applied to mindsets instead.

Instead of crony/meritocratic employees (beliefs), you might have a crony/meritocratic HR & hiring process.

Julia’s metaphor of scout vs. soldier mindset roughly maps to meritocratic vs. crony beliefs too.

Kevin’s article is definitely worth reading in its entirety, because it gives a very vivid metaphor to understand the interplay of the two types of beliefs.