Rivalry and habituation

I've been reading a bit about rivalrous behavior and the "hedonic treadmill" lately. For nice expository papers see the Web page of Richard Layard, an LSE economist who has a new book on the economics of happiness.

The hedonic treadmill is based on the idea of habituation. If your life improves (e.g., move into a nicer house, get a better job, become rich), you feel better at first, but rapidly grow accustomed to the improvement and soon want even more. This puts you on a treadmill from which it is difficult to escape. (Of course, habituation can be a good thing: after a traumatic event (e.g., loss of job, or limb, or loved one), you feel terrible at first but after a while can go on with your life.) Incidentally, I know a lot of former physicists now on Wall Street, who provide a nice example of habituation. Most go into finance thinking of a particular "number" (net worth) they want to reach in order to retire. But, their lifestyle requirements and therefore number tend to increase along with compensation, making escape difficult.

Layard believes people work too much, are too obsessed with money, and take too little leisure. In addition to habituation, another cause of this is so-called rivalrous behavior, in which our happiness depends on how our situation compares with a reference group of peers (co-workers, neighbors, family members, etc.). As an example of rivalrous behavior, people asked questions such as: "Which would you prefer: your salary is $50K per year, but your peers make $25K, or your salary is $100K per year, and your peers' $200K?" generally prefer the former, even though they would be worse off in absolute terms. However, people are not rivalrous when it comes to leisure: when asked a similar question about vacation, most people prefer the choice which gives them the most vacation, regardless of how much their peers are allowed. If you consider these results, it suggests that people would be happier in a society that is (a) more egalitarian and (b) offers more leisure, even if they are not as materially wealthy. As a Labour MP, you might imagine Layard would prefer this European economic model over the nasty US one, but he does have some interesting data supporting his assertions.

Without specifically endorsing Layard's policy recommendations, I can agree that habituation and rivalry abound. Most PhD students dream of becoming tenured professors, not realizing how rapidly the resulting glow can fade into petty competition over salary or citations. Many young entrepreneurs or financiers imagine happiness is guaranteed upon achieving millionaire status, only to realize that their new peer group comes with even wealthier, more successful, rivals.