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Article: "Global Equity Strategy: If It Makes You Happy" by James Montier @ CoolAvenues.com

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Global Equity Strategy: If It Makes You Happy

- by James Montier

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Part - V

There is an additional problem with changing life circumstances as a path to increasing happiness. It goes by the frightening name of hedonic adaptation * . Simply put, hedonic adaptation means we are very good at quickly assimilating our current position, and then judging it as normal, hence only changes from our "normal" level get noticed.

Gains in happiness quickly become the norm. So changing life circumstances seems to lead to only temporary improvement in people’s happiness. This helps explain the chart on p3, which shows that since the 1950s people’s happiness levels have been remarkably constant, despite a massive growth in income per head over the same time horizon.

Schkade and Kahneman (1998) ** show that whilst "living in California" was an appealing idea for many Americans, it didn’t actually boost long run happiness. That is to say, people living in California were about as happy as other Americans on average. So whilst moving may provide a temporary increase in happiness, it is soon adapted into the perception of the "norm".

Hence hedonic adaptation severely limits the ability of changing life circumstances to improve long run happiness. So neither life circumstances nor the set point seem to hold the key to creating sustainable increases in happiness.

All of which means that any hope for increasing happiness on a long term basis must lie with the third and final component of happiness - intentional activity. Sheldon et al define intentional activity as "discrete actions or practices that people can choose to do". By process of elimination, intentional activity must account for 40% of people’s happiness.

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* Frederick and Loewenstein, Hedonic Adaptation in Well- Being: The foundations of hedonic Psychology, ed. Kahneman, Diener and Schwarz (1999).
** Schkade and Kahneman (1998) Does living in California make people happy?, Psychological Science, 9.


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