Experience-stretching and the income-happiness paradox

It is by now widely acknowledged that once people achieve a basic minimum income level, further increases in individual incomes do not automatically translate into increases in happiness. In fact, a study by David G. Blanchflower and Andrew Oswald has even claimed that in the United States despite rising incomes, "the well-being of successive birth-cohorts has gradually fallen through time".

In this context, Jonah Leherer points to a new study by Quoidbach J, Dunn EW, Petrides KV, and Mikolajczak M, that draws from the experience-stretching hypothesis (that an over-dose of a happy experience lowers the marginal utility associated with an additional unit of the activity) of Daniel Gilbert, and concludes that money does not always make people happy.

The new study argues that money's ability to allow us to enjoy the best things in life (like great vacation or food) also, ironically enough, ends up decreasing our ability to enjoy the mundane joys of everyday life (like sunny days, cold beers, and chocolate bars, happy home life etc) which is the source of most of our joys in daily lives. This is because experience stretching (by way of cognitive comparison between the limited time on the "best things in life" to the remaining times on the "mundane things in life") ends up diminishing the relative (and by extension, the absolute) values of the subsequent less pleasurable experiences. They write,

"This study provides the first evidence that money impairs people's ability to savor everyday positive emotions and experiences. In a sample of working adults, wealthier individuals reported lower savoring ability (the ability to enhance and prolong positive emotional experience). Moreover, the negative impact of wealth on individuals' ability to savor undermined the positive effects of money on their happiness.

We experimentally exposed participants to a reminder of wealth and produced the same deleterious effect on their ability to savor as that produced by actual individual differences in wealth, a result supporting the theory that money has a causal effect on savoring. Moving beyond self-reports, we found that participants exposed to a reminder of wealth spent less time savoring a piece of chocolate and exhibited reduced enjoyment of it compared with participants not exposed to wealth. This article presents evidence supporting the widely held but previously untested belief that having access to the best things in life may actually undercut people's ability to reap enjoyment from life's small pleasures."

Update 1 (27/7/2010)

Daniel Sgroi finds that happiness raises productivity by increasing workers' effort and concludes that economists may need to take the emotional state of economic agents seriously.