Tuesday, February 17, 2015

The Losses of Winning

Coming into Money
Can Carry a Very Big Price

Suddenly coming into big money or having a large lottery win may be more of a curse than a blessing. Winnings, for many, have extracted a heavy price. 

Some interesting research projects suggest that we are better off generally staying on even ground. A large upward surge in your finances can give a spike on the happiness scale initially, but over time that effect fades and in fact leaves you much worse off.

Adaptation Level Theory.

The reason the happiness spike fades is because of a psychological phenomenon known as “adaptation level theory.” When something new and exciting happens to us, we feel a surge of pleasure. Our brains release a chemical called serotonin, which is a happy drug, and we feel a glow for a while until the drug fades.

The transient and relative nature of happiness.

Adaptation Level Theory also defines the transient and relative nature of happiness. For instance, with the passage of time, the loss of the use of say an arm generally tends NOT to make you significantly unhappier, once you have had sufficient time to adjust to the new norm.

For Better or for Worse - in the end much the same.

Two interesting studies carried out back in1978 looked at this factor. The studies took 22 lottery winners, 29 people paralysed in accidents, and measured against controls. The experiments in both cases clearly showed that people were not significantly worse off or better off than the controls. When either a positive or negative event begins to fade into the past, the levels of happiness or unhappiness that were initially created tend to go back to a general norm.

Among other interesting factors that emerged from various studies are the following;

(1) The Erosion of Satisfaction.

This one is what I would describe as a sort of Monday-itis or post-holiday-blues, or maybe it is more like drug adaptation? The studies showed that lottery winners, with the passage of time, not only were they no happier than the controls, but they took an additional and negative hit. I call this "the erosion of satisfaction". Ordinary everyday events, activities and chores etc. that previously gave a sense of satisfaction or pleasure no longer gave them that effect.

(2) The Losses of Winning.

This one I would describe as “The Losses of Winning”. A research project in 2009 at Vanderbilt University and the University of Kentucky showed two interesting trends: (a) Individuals who won between $50,000 and $150,000 failed to pay off debts that they had from before the winnings. (b) Lottery winners are twice as likely to go bankrupt.

(3) Sudden Money Shortens Life.

Another bit of research has shown that many individuals who have big wins, or otherwise come into big money, tend to smoke a lot more and increase their social drinking, so they are more likely to die younger and suffer more illness. These findings come from a 2010 study done by Bénédicte Apouey and Andrew E. Clark, who are economists at the Paris School of Economics.

So perhaps you are better off not buying that lottery ticket.

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