The Financial Wellbeing Junkie part 2


on 28 February 2021

hedonic treadmill

Guest post from Neil Bage

 

Part one of this article, written by Chris Budd, explored the concept of the hedonic treadmill, the theory that although events have a positive or negative effect on our wellbeing, it is only temporary.

 

Chris points out that we must focus on making longer term changes to our wellbeing so that we alter the set point of our happiness upwards. Which begs a further question: what drives us to believe that our actions will result in long lasting happiness, even though the evidence suggests otherwise? What role does our unconscious play in this, especially our behavioural biases?

 

We can look at several biases to shed some light on why the hedonic treadmill exists, and why we could all step on at points in life.

 

The Impact Bias is a great place to start. This behavioural bias sees people overestimate the length or intensity of happiness that major events will create. In other words, we do something believing that it will have a much longer term beneficial impact on us than reality shows.

 

Underpinning the Impact Bias is what is known as ‘affective forecasting’, a psychology phenomenon that highlights how terrible humans are at predicting our future emotional states.

Sitting nicely alongside this is our Self-control Bias. This is an emotional behavioural tendency that causes people to fail to act in favour of their long-term, overarching goals, all because of their lack of self-discipline in the short-term. Linked to Hyperbolic Discounting or Present Bias, this can be exacerbated by the Impact Bias leading to a double-whammy of negative behaviour!

 

Finally, we have Optimism Bias, a bias that leads people to believe that they are less likely to experience a negative event than someone else. In other words, whatever I do to make me happy is more likely to come to fruition than if someone else was doing the same thing.

 

The amount of overestimation and underestimation at play here can have an obvious, and potentially negative, effect on a person’s psyche and mental health.

 

And so, as Chris wrote in part one of this article, by stepping off the hedonic treadmill, and focussing on what really matters in life, coupled with a greater degree of self-awareness, we can increase our set point of wellbeing, and truly be happier.

 


 

Neil is a behavioural finance expert and founder of the multi-award winning Be-IQ.  Having joined the Financial Wellbeing Podcast for multiple interviews, Neil now shares a money behavioural tip each episode with Bage’s Biases. Exploring and thinking a little bit about the behavioural traits we have towards money, to inform us so we can make better money decisions going forward.

 

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