The Hedonic Treadmill-Is Enough Ever Enough?

Previous articles on this site have delved into questions of compensation satisfaction, work/life balance, and job security in the hedge fund industry. These were explored in statistical terms using comprehensive data published in the 2018 Hedge Fund Compensation Report.

However, today’s post will look at this subject from an entirely different perspective…a theoretical perspective, known as hedonic adaption.

The Premise

Proponents of this theory suggest that happiness, whether with one’s compensation, with one’s work/life balance, or with one’s job security, ultimately returns to a baseline level of happiness. The theory acknowledges a surge in happiness when one’s compensation increases, work/life balance improves, or job security is enhanced. Sadly, these new levels of happiness are unsustainable and individuals, sooner or later, return to their baseline level of happiness even though the gains made remain intact.

The Treadmill

This hypothesis came to be known as the hedonic treadmill for exactly this reason. It seems that no matter what level of compensation, security, or balance one achieves, the level of happiness eventually returns to baseline and one must begin running, metaphorically speaking, to reacquire that previous level of happiness.

In short, enough is never enough! The Hedge Fund Compensation Report seems to support the theory. After more than a decade in print, the percentage of those expressing compensation satisfaction, contentment with work/life balance and a blissful lack of concern regarding job security reflects remarkable year-over-year consistency, with the largest swings exhibited in the job security category…understandable in the years following the financial crisis.

Some History

In 1971, two psychologists, Brickman and Campbell, published Hedonic Relativism and Planning the Good Society, which concept was known as hedonic adaption. Twenty years later, Michael Eyseneck coined the term hedonic treadmill, which more accurately reflects the nature of the phenomenon.

Obviously, the concept applies broadly to the human condition, and is not confined to the world of hedge fund professionals. However, one could easily argue that the behavior suggested by the hedonic adaption theory is a net positive for the hedge fund industry. Why? Because it means that hedge fund professionals will not choose to sit on their laurels, but rather they will strive to achieve that elusive happiness engendered by previous successes.

What about Hedge Fund Jobs?

Opportunities for employment in the hedge fund industry remain robust, particularly so for those with advanced degrees in computer science, artificial intelligence, mathematics and machine learning.

According to HFR, hedge fund starts continue to outpace closures in 2018, suggesting that opportunities for mid-level hedge fund professionals remain tepid as outlined in this earlier article.

Following the same logic outlined in the aforementioned article, entry level opportunities in the industry remain strong.

Final Thoughts

If one accepts the premise of the hedonic treadmill hypothesis, one must also accept the theory that any happiness achieved through out-sized earnings, exceptional work/life balance, and enhanced job security, will quickly fade, sharing the same fate as fame, which, we all understand, is fleeting.

The love of investing is a much better reason to pursue a career in the hedge fund industry than is happiness, which, sadly, is short-lived. Love, on the other hand, is eternal.

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