Daniel Kahneman: The riddle of experience vs. memory | Talk Video | TED.com
(The reader is strongly encouraged to watch the above-linked talk before proceeding.)
Here’s a summary/analysis:
(1) The following are fundamentally different: what we remember, vs what we actually experience. The level of happiness (or pain) experienced by the self during an activity tends to be very different from the level of happiness associated with the memory of that activity.
(1a) Decisions are made by the Remembering Self. We evaluate an activity based on what we expect to remember about the activity. (Also, expectations are derived from interpretations—i.e. theories—of past experiences.)
(2) Inter-personal relationship is the dominant contributor to happiness, far more significant than income. (Presumably true with respect to both the Experiencing and Remembering selves.)
(3) Experienced happiness absolutely flat-lines with increase in income above US$60,000 (based on a study on US citizens), i.e. after a certain level of wealth, more money contributes absolutely nothing to Experienced happiness.
(3a) Remembered happiness, on the other hand, increases indefinitely with income. However, the increase is logarithmic, meaning the more wealthy one already is, the more wealth is needed to increase one’s Remembered happiness. (*the values on the x-axis increase exponentially http://www.economist.com/blogs/graphicdetail/2013/05/daily-chart-0)
Personally, I would like to distinguish between Real happiness vs Theoretical happiness. Experienced happiness is real, simply because it is what we actually experience. Remembered happiness is theoretical, because it exists only in our own minds as a theory.
But how could our theory be so far removed from reality!? I propose that it is due to our tendency to extrapolate from limited data without considering the limits of such extrapolation. E.g. if one more scoop of ice cream makes me happier, that means two more scoops of ice cream would make me even happier, right? But the truth is that our human bodies are limited to a certain amount of scoops. Or, one may argue, that a $10 ice cream tastes much better than a $1 ice cream, so a $100 ice cream would make me even happier, right? Again, the truth is that our human bodies (and minds) are limited to a certain amount of sensation (and attention / cognition), so that there is also a limit to the amount of pleasure we can experience via sensory stimuli.
How about spending excess money on other people? If buying my loved one a $10 ice cream makes me happier than buying her a $1 ice cream, that means that buying her a $100 ice cream would make me happier, right? Or perhaps, buying ice cream for 100 loved ones would make me happier than buying ice cream for 10 loved ones, right? But the truth is that the human body / mind is actually limited in its capacity to derive pleasure from loving / being loved.
Bad theory leads to bad decisions. And when our theory is bad, the same theory gives us the illusion of well-being, when in reality we are just deceiving ourselves.
Bonus question: when we reach the limit of happiness afforded by material wealth / inter-personal relationship, what is there left for us to do? Does life have greater meaning beyond these human-bodily limits?