Minimalism and Behavioral Economics
How insights from Economics can help you lead a more considered life
Making lifestyle changes is difficult. While many people feel that there is something missing in their lives, and they would like to take steps to change this, the path forward is often not clear-cut. Thankfully, one field that has emerged in recent decades to help with this is Behavioral Economics. While traditional Economics worked off the assumption that people were perfectly rational and could be expected to maximize their satisfaction, or their utility to use the language of Economists, Behavioral Economics has incorporated ideas from psychology to give us a more clear and accurate understanding of how people make decisions.
As a student of Economics, I was happy to discover how some of the principles and theories from Behavioral Economics can be applied to help people live happier, more meaningful lives, and how these ideas often echo ancient wisdom. For example, it incorporates the commonly referred to idea of hedonic adaption, or the aspiration treadmill. As people’s endowments increase, so do their aspirations, in a continuous cycle. This concept has been discussed by Eric Angner, in his introductory book on Behavioral Economics. He points to Seneca, the Stoic philosopher, who identified this problem millennia before economists formalized it, when he said that:
“Excessive prosperity does indeed create greed in men, and never are desires so well controlled that they vanish once satisfied.”
There are a wide range of explanations for behavior like this, and in this discussion we will avoid going into more technical details, such as the endowment effect, however, it is worth considering framing effects. This is the idea, perhaps obvious to anyone outside of Economics, that how people value things depends on how their options are framed, and what reference points they use.
If you measure yourself against other people’s achievements, you can set yourself up to be disappointed. Part of the reason that increasing your income has a limited relationship to your happiness is because you begin to compare yourself to richer people. Your reference point changes, as the people you compare yourself to changes, and consequently you don’t feel significantly happier despite an increase in income.
So, there are two key takeaways from this. Firstly, that you should be careful about who you compare yourself to, and you should consider the impact that making comparisons has on your happiness. Of course, comparison can be helpful, but perhaps it is better to compare your achievements and habits to your former self as a way of tracking progress, rather than comparing yourself to someone else. Secondly, understanding the idea of the aspiration treadmill, or hedonic adaption, should demonstrate that you should carefully consider the goals you are pursuing, such as boosting your income or buying a new car. How likely you are to adapt to your newfound success. Will you truly be in a better place than when you undertook the endeavor?