Laura Rowley Money & Happiness

A few years ago, after more than a dozen years in Manhattan, my husband and I finally bit the bullet and moved to the suburbs.

We traded our 900-square-foot, one-bedroom apartment in the city for a 2,000-square-foot, four-bedroom colonial in New Jersey. Just in time, too. Our third child was born shortly after we moved.

I thought I'd died and gone to real-estate heaven. But it didn't last.

Just as I had once longed for the classic-six apartments and Hamptons retreats of our Manhattan friends, I now began eyeballing the mansions higher up the hill and envisioning the delights of a summer place on the Jersey Shore.

Scientists call this phenomenon "the hedonic treadmill." It simply means we adapt to the improvement in our circumstances and then seek more. The more stuff we have, the more we demand from life -- and the more disgruntled we become when we don't get it.

So what's wrong with improving our material circumstances? This is just the pursuit of the American Dream, right? Well, not if your ultimate goal is happiness, according to three decades of research in the field of "subjective well-being."

Scientists have found that while a certain amount of money does indeed make us happy, once basic needs are met, happiness doesn't continue to rise in direct proportion to income. For instance, surveys of lottery winners found they are not much happier than the average person -- and actually took less pleasure in routine events, like a friend telling a joke. I suppose once you win Powerball, the neighbor's knock-knock jokes kind of pale in comparison.

But that's not all. Researchers Tim Kasser of Knox College and Dr. Richard Ryan of the University of Rochester have found that people who make money a top goal in life are at greater risk for depression, anxiety, behavioral and relationship problems, and score lower on indicators testing for self-actualization and vitality (or feeling alive and vigorous). The results were consistent across different countries, income levels, and age groups.

So if scientists say chasing more money and more stuff can actually be bad for you, why do we keep climbing on the hedonic treadmill?

Here's one compelling theory: People are bad at predicting what will make them happy. Princeton psychologist Daniel Kahneman won the Nobel Prize in economics in 2002 for his work in this area. Basic economic theory suggests that you and I are motivated by self-interest. We know what we want, we can predict the most desirable outcome, and we can make the best choice to maximize our welfare. Not true, say Kahneman and others. We don't always act rationally. Consider the irrational attachment to New York City that would prompt a family of four to live in a one-bedroom apartment, for example. We left reluctantly, viewed it as a sacrifice for the kids, and predicted living in the suburbs would make us unhappy. Strangely, it turned out to be quite the opposite.

Why can't we predict what will make us happy? As Kahneman explains, there are two people involved in our decisions: The self that actually experiences events and the one who remembers them. It's the remembering self who keeps score and controls our destiny. When we recall events, we craft a narrative for ourselves, paying closest attention to the peak and the end of the experience. And that results in a limited picture of what actually happened.

Psychologists discovered this phenomenon by having subjects do both real-time, minute-by-minute assessments of an experience and then an after-the-fact evaluation. Kahneman, for instance, did a study of patients receiving colonoscopy exams. In the study, Patient A went through a buildup to sharp pain and then the procedure was over. Patient B went through a longer procedure -- a buildup to sharp pain, which then declined to slight discomfort before the exam ended.

Here's the wacky part of the findings: The people whose experiences ended on a less-painful note rated the experience better, even though they suffered exactly the same pain as Patient A and the event lasted for a longer period of time. They only remembered the peak and the end.

So what's my point? Like the colonoscopy patients, we focus on the peak of an experience and the end, ignoring the stuff in the middle. So we'll remember the rush of closing a big deal at work, but we won't remember what it cost in time away from our families. We'll remember how spectacular it felt to trade up to larger digs, but we won't remember how long and hard we had to work to get there.

The bottom line: The bigger the trade-up in lifestyle, the bigger the monthly nut -- and the harder we have to work to achieve material goals. Since there are only 24 hours in a day, we end up sacrificing other aspects of life that actually do create lasting happiness (at least according to scientists): Spending time with family and friends, exercising, volunteering, or swinging on that hammock in the back yard with a copy of Sports Illustrated and a cold Heineken. (Okay, that last one came from husband, not from scientific research.)

So how do we resolve this dilemma? Make a list of 10 things you value most in life. Make a list of the people, the qualities and the experiences that are most essential to your happiness. Then set goals for yourself as to how you'll build a life that consciously reflects those values, connecting them to both money and time.

Value a relaxed, secure retirement? Max out your 401k or IRA contribution. Value a relationship? Schedule lunch with that person a couple times a month. Value helping others? Mentor a colleague or volunteer for a charity you strongly believe in. Consciously choose what the happy life looks like for you, rather than allowing the irrational self to run you ragged on the hedonic treadmill so you can buy more stuff.

Meanwhile, if you come across a bargain surfer's shack on the Jersey Shore, let me know. On second thought, don't.