While finishing off the fourth chapter of my book (in which I explore the links between happiness and grades) I came across an interesting academic paper written by Nattavudh Powdthavee, a socio-economist at the University of York. The paper is titled, ‘Putting a Price Tag on Friends, Relatives and Neighbours’ and in it, Powdthavee uses a method called shadow pricing to assign monetary values to a number of social phenomenon.

Shadow Pricing Explained

How does shadow pricing work? The statistical maths behind it is a little complicated but the basic idea can be illustrated with the following example: Let’s say you are earning £10,000 a year. At this point you may rate your happiness to be a six, on a scale of one to ten. However, the following year you get promoted and your salary is increased to £30,000. When you are asked how happy you are, you now reply with a happiness rating of eight. Assuming nothing else contributed to your happiness, one could infer that to increase your happiness by two points you require £20,000. Now, what if in another situation instead of an increase in salary, you got married and your happiness did also move from six to eight. One could then infer that the shadow price of marriage is £20,000.

Powdthavee’s methadology is more sophisticated than my example implies, and uses data from the British Household Panel Survery, which includes over 10,000 randomly selected individuals. What you get from such enormous data are estimates and valuations which are eye-opening. Powdthavee estimates, for instance, that if you move from seeing your friends or relatives less than once a month to seeing them on most days (more than twice a week), your life satisfaction could improve just as much as if you were handed £85,000!

What is the significance of this number? And why should we put ‘price-tags’ on friends? Well, for one, this figure is a reminder of how important it is to have a healthy social life if you want to be happy (and don’t forget, happy people often outperform sad people in a number of fields, including education). Secondly, such estimates can help with decision making. For example, when you graduate you might be faced with the dilemma of choosing between a high-paying job which requires you to relocate far away from your friends and relatives, and a lower-paying job nearer home. But with a monetary estimate of how much your social life is worth, you can make better-informed decisions in situations such as these.

Here are few other interesting estimates in Powdthavee’s paper (the reds are negative values):

• Seeing friends/relatives once or twice a month: £57,500
• Seeing friends/relatives once or twice a week: £69,500
• Seeing friends/relatives on most days: £85,500
• Marriage: £50,500
• Living as a couple: £82,500
• Unemployed: £143,000

My favorite positive psychology study is one published in Science by Liz Dunn and her colleagues at UBC. They found that people who spent their salary bonuses on other people were happier than those who spent it on themselves. And they did an experiment in which they gave students five dollars or twenty dollars and instructed them to either spend the money on themselves or on someone else. Like rational economists, other students guessed that it would make people happiest to get the larger amount and to spend it on themselves. But that is not what happened. Instead, the students were happiest when they bought someone else a gift, regardless of the amount. These findings are part of a heartening wave of new research suggesting that human beings are chock-full of mechanisms designed to make us feel good when we cement our bonds with those around us.

Excerpt from Sex, Murder, and the Meaning of Life by Douglas T. Kenrick

This prediction error works as follows. You are about to buy a new car. It is going to change your life, elevate your status, and make your commute a vacation. It is so quiet that you can hardly tell if the engine is on, so you can listen to Rachmaninoff’s nocturnes on the highway. This new car will bring you to a permanently elevated plateau of contentment. People will think, Hey, he has a great car, every time they see you. Yet you forget that the last time you bought a car, you also had the same expectations. You do not anticipate that the effect of the new car will eventually wane and that you will revert to the initial condition, as you did last time. A few weeks after you drive your new car out of the showroom, it will become dull. If you had expected this, you probably would not have bought it.

Excerpt from The Black Swan by Nassim Nicholas Taleb.

The reason why we see so many rat racers around is that our culture reinforces this belief. If we get an A at the end of the semester, we get a gift from our parents; if we meet certain quotas on the job, we get a bonus at the end of the year. We learn to focus on the next goal rather than on our present experience and chase the ever-elusive future our entire lives. We are not rewarded for enjoying the journey itself but for the successful completion of a journey. Society rewards results, not processes; arrivals, not journeys.

Once we arrive at our destination, once we attain our goal, we mistake the relief that we feel for happiness. The weightier the burden we carried on our journey, the more powerful and pleasant is our experience of relief. When we mistake these moments of relief for happiness, we reinforce the illusion that simply reaching goals will make us happy. While there certainly is value in relief—it is a pleasant experience and it is real—it should not be mistaken for happiness.

Excerpt from Happier by Tal Ben-Shahar.

Photo credit: James Clar.

Finally, graduation is upon us. In last three years we have slaved away and worked relentlessly to achieve one key goal: to graduate. But now that University is over, a whole new world opens up. How are we to direct our lives from here on; especially after spending 17+ years in an education system, which to a certain extent did the directing for us?

As we enter the ‘real world’, we are invited, or rather, are required to consider the bigger picture and direct our own lives. The best way of doing this is by setting our own goals and working towards new aspirations. Goals will continue to be particularly important in this journey because:

Ample evidence links goals to well-being. Goals can provide structure, meaning, identity, and a sense of purpose, and progress towards goals results in positive affective states such as hope, enthusiasm, and pride.

(Segerstrom and Nes, 2006)

In other words, goals are good for our psychological health. But what kind of goals should we pursue after graduation? Ideally the ones that lead to the highest level of life satisfaction and subjective well-being. Many desire money, material wealth, image, and fame, but there is a ‘dark side to the American dream’, as Kasser and Ryan (1993) found. In a study where they interviewed college students, they concluded:

When goals for financial success exceed those for affiliation, self-acceptance, and community feeling, worse psychological adjustment was found.

(Kasser and Ryan, 1993)

Therefore personal growth, close relationships and community involvement should not be ignored as we venture out into the real world. Such aspirations, labeled by Kasser and Ryan (1996) as intrinsic goals, help satisfy our basic psychological needs, which are:

Autonomy

a sense of choice and free will




Competence

effective interaction with the environment




Relatedness

connecting with others and being cared about




(Niemic, Ryan, and Deci, 2009)

Extrinsic goals such as money and fame are not as conducive to these needs and so we must be cautious, for the single-minded pursuit of extrinsic aspirations could lead to a very unsatisfactory life.

Not to say that pursuing money is totally unhealthy. If you want to be rich, just make sure that it is for the ‘right’ reasons i.e. the money facilitates an increase in autonomy, competence, and relatedness. The wrong reason would be an attempt to use the money to show off, or to garner some form of external validation about yourself.

I guess this essay applies to me more than anyone else. In fact, I wrote it firstly for me because I have a big financial goal. After doing some reading and reflection, I have adjusted my goals accordingly.

Fellow graduates, as we set out to begin our adult lives, let us make sure that if we are to pursue anything in life, that it leads to an increased sense of free will (autonomy), personal growth (competence), community involvement and good relationships (relatedness).

References:

Kasser, Tim, and Richard M. Ryan. “A Dark Side of the American Dream: Correlates of Financial Success as a Central Life Aspiration.” Journal of Personality and Social Pyschology (1993) 65, no. 2: 410-422.

Kasser, Tim, and Richard M. Ryan. “Further Examining the American Dream: Differential Correlates of Intrinsic and Extrinsic Goals.” Personality and Social Psychology Bulletin 22, no. 3 (1996): 280-287.

Niemiec, Christopher P., Richard M. Ryan, and Edward L. Deci. “The Path Taken: Consequences of Attaining Intrinsic and Extrinsic Aspirations in Post-college Life.” Journal of Research in Personality 43, no. 3 (2009): 291-306.

Segerstrom, Suzanne C., and Lise Solberg Nes. “When Goals Conflict But People Prosper: The Case of Dispositional Optimism.” Journal of Research in Personality 40, no. 5 (2006): 675-693.