In their book, ‘How Much Is Enough’, Abey and Ford propose the idea of hedonic arbitrage – basically the notion of increasing your happiness without increasing your spending or wealth. This is an idea the authors have been exploring in conjunction with behavioural finance authority Shlomo Benartzi.
The basic underlining principle is that we are best off spending our limited resources on the things that are going to make the biggest contribution to our happiness. Sounds pretty simple doesn’t it?
The only problem is, when it comes to knowing what is going to make us truly happy – not just fleetingly, but over the long term – us humans tend to come up short.
This point is well illustrated by the fact that although our wealth has risen exponentially over the past 50 years, happiness levels have barely changed. Obviously, we aren’t using our increasing wealth to improve our happiness.
The good news is there are things we can do to get in touch with what makes us happier, and spend less money while we’re at it.
focus on gratifications, over pleasures
In the pursuit of happiness, leading positive psychologist Martin Seligman emphasises the difference between pleasures and gratifications. Pleasures come from external stimuli bringing immediate delight to the senses and tend to be momentary – for example, enjoying a glass of wine, listening to your favourite song or taking a warm bath on a cold day. Gratifications on the other hand involve us getting lost in activities that challenge and engage us. This could include rock-climbing, dancing, painting or playing chess.
As gratifications have a longer lasting impact on our happiness, hedonic arbitrage dictates channelling more money to these things and less to the momentary pleasures. The good news, gratifications also tend to be cheaper!
take the eating out test
Happy, fulfilled people know what experiences they value and invest their time and money on those things. Here is a short activity to help you get in touch with what experiences you value and why.
First ask yourself which experience you would prefer and why:
- Dining out at an expensive restaurant
- A cheap and cheerful night out with a group of colleagues
- Cooking at home with a handful of friends
Now try each of these experiences and take note of which you most enjoyed and why. Did your expectations match the outcome? Did your preferences have more to do with dollar outlay, ambience or the people involved?
the $50 test
Similar to the eating out test, this involves you getting in touch with the experiences and things you value most. Over the next few weeks plan three activities spending less than $50 each. This could include a anything from dinner with your partner, taking children to the movies, buying art supplies, doing a cooking class or planting a small vegetable garden. For each activity rate how happy you think it will make you, how happy it makes you immediately after and how happy it makes you a month later. What did you discover? Did your expectations match the outcome? Which activity gave you the most happiness over the long-term?
keep a happiness diary
This is similar to a keeping an expense diary but with an extra column for how happy each item makes you. Over the next week or two record everything you buy and do, how much it costs and how happy it makes you both immediately after and a month later. Now look at what you’re spending most of your money on. Does it match up with what makes you most happy? If not, why not?
Finding out what makes you happy takes time and effort, but in a world of prioritisation what could be more important?
For more information on hedonic arbitrage, or to order Abey and Ford’s book, check-out www.howmuchisenough.net