Hedonic adaptation

A fundamental question in economics is whether happiness increases pari passu with improvements in material conditions or whether humans grow accustomed to better conditions over time. We rely on a large-scale experiment to examine what kind of impact the provision of housing to extremely poor populations in Latin America has on subjective measures of well-being over time. The objective is to determine whether poor populations exhibit hedonic adaptation in happiness derived from reducing the shortfall in the satisfaction of their basic needs. Our results are conclusive. We find that subjective perceptions of well-being improve substantially for recipients of better housing but that after, on average, eight months, 60% of that gain disappears.

That's the abstract of this paper (free to download).

Hedonic adaptation is a central principle of the human condition, and it's been fascinating to see more and more research on how it works, how it varies under different conditions. Is it really true that money can't buy happiness? Or does that only apply after you reach some baseline of economic well-being? The paper provides a solid overview of the current state of the thinking on the subject.

The hedonic adaptation hypothesis is that there is a psychological process that attenuates the long-term emotional impact of a favorable or unfavorable change in circumstances, such that people’s level of happiness eventually returns to a stable reference level (Frederick and Lowenstein 1999). According to the hedonic adaptation hypothesis, then, variations in happiness and unhappiness are merely short-lived reactions to changes in people’s circumstances. In other words, while people initially have strong reactions to events that change their material level of well-being, they eventually return to a baseline level of life satisfaction that is determined by their inborn temperament (Diener et al., 2006). In psychology, this idea is known as the set point theory and was labeled the hedonic treadmill in the seminal work of Brickman and Campbell (1971). Indeed, in a widely cited paper, Brickman et al. (1978) present evidence that lottery winners report life satisfaction levels that are comparable to those of people who did not win a lottery one year after the event.2
Frederick and Lowenstein (1999) hypothesized that people do not adapt to shocks in terms of basic necessities that are related to survival and reproduction. This suggests that hedonic adaptation is manifested the most in people who have achieved a certain level of basic material well-being rather than being a persistent phenomenon that is evenly distributed across all socioeconomic groups. The idea is analogous to the notion of diminishing marginal utility, where the marginal increase in happiness derived from material gain is higher at lower levels of material wealth. The analog in hedonic adaptation is that adaption is more limited at lower levels of material wealth. In essence, then, the idea is that the happiness levels of the poor do not adapt, or do not adapt completely, to shocks in terms of basic necessities.
In this paper, we present the first piece of experimental evidence on hedonic adaptation among the poor to improvements in the satisfaction of their basic necessities, specifically shelter. 

I'm no expert on the subject, but in my experience this holds true: being rich doesn't guarantee happiness, but being really poor is almost certain to make you unhappy. Even if hedonic adaptation affects the poor, even if those who are well-off are unhappy if their neighbors are more well-off (a common Silicon Valley disease), I still think the greatest human welfare gains to be made in the world come from bringing those in poverty up to some baseline of economic self-sufficiency and good health. Reducing unhappiness is often undervalued in comparison to creating happiness.

So much brainpower devoted to trying to create so many consumer behaviors, but someday someone will figure out how to make philanthropy addictive and habitual, and that will change the world.