Despite all of our differences — real and perceived — the vast majority of people have one thing in common: Everyone wants to be happy. And yet extensive research shows that we often fail to maximize our happiness by making poor decisions and choosing suboptimal options — even when we can accurately predict which option generates more pleasant consumption experiences. As a result, understanding and correcting human biases is crucial to maximizing both our own happiness as well as that of customers and consumers of all types. Research has primarily focused on identifying human bias. However, simply knowing about possible errors does not automatically help consumers correct them. A more effective strategy is to understand why mistakes happen and address them using behavioural interventions that tackle the root cause.

In this article, we will present some key insights from the research in consumer psychology and behavioural science. We will begin by looking at some of the key external stimuli that affect consumer happiness.

Factor 1: Loss aversion

In the behavioural science research, loss aversion has been one of the most influential findings to date. In plain language, it means that across a wide variety of contexts, losses exert a much bigger impact on individuals than equivalent gains. For instance, while losing $1,000 feels very stressful, people might only experience mild joy when gaining the same amount in a salary increase. Additionally, people make greater efforts to avoid losses than to attain gains.

However, recent research suggests that loss aversion may be less impactful than previously believed. One study found that consumers were more likely to adopt a new online service to renew their driver’s license stickers when the messaging mailed to them emphasized the gains of the new service (e.g. convenience, time savings) than when the messaging highlighted the losses of not doing so. This might be due to ‘ambiguous valuation’ of non-monetary items: it is easier to adjust the value of losses when they involve ambiguous, non-monetary items compared with money. For example, the value of time depends on whether people think of it as work time or leisure time, whereas the value of $100 is less ambiguous.

The overall positivity or negativity of the net outcome also affects consumer preferences. Specifically, people prefer positive outcomes with lower magnitudes of gains and losses. Conversely, preferences reverse when facing losses. This inclination arises because a large amount of losses offsets happiness from gains in a net-gain situation, whereas a large amount of gains ease the pain of losses in a net-loss situation. As a result, people’s preferences may appear to be unstable. For example, they may prefer a low-risk portfolio (i.e. lower volatility) when expecting a net gain but prefer a high-risk portfolio (i.e. higher volatility) when expecting a net loss. Overall, studies show that emphasizing losses rather than gains can be effective in encouraging behaviour changes, such as increased adoption of online services or compliance with public health guidelines.

Factor 2: Temporal factors

Maximizing happiness over time is a critical principle in consumer decision-making. However, consumers are notoriously inaccurate in predicting the impact of time-related factors on their happiness. Two classes of factors are important here:

Consumption time and speed. Consumers often need to decide how much time to allocate to a consumption event while concurrently predicting how the time duration will influence their overall happiness. However, they often can’t accurately predict the relationship between consumption time and experience. For example, people believe they can increase happiness by spending more time on pleasurable consumption and less time on negative events. This belief seems reasonable. However, the pleasantness of consumption is often affected by irrelevant factors, which causes time allocation to become unstable.

For example, planning for individual weekend social activities such as brunch and visits to a museum and shopping mall separately (unpacking the event) makes each activity seem more fun and causes people to allocate more time to each activity — compared to planning for the entire weekend first and then dividing the time between activities. On the other hand, enduring a negative event (e.g. going to a museum with a cousin you don’t like) feels more painful when the event is perceived as consisting of several unpleasant sub-activities (e.g. meeting them at the train station, having lunch, looking at art together.) As a result, people’s estimates of consumption time can be systematically influenced by the framing of the events. This is not rational because the activities are identical, after all.

Research has identified an interesting phenomenon called "duration neglect," which means that the happiness or pain experienced is not sensitive to the length of an experience. One recent study extended this work by examining the effect of "duration knowledge" on consumption. It found that, while people would rather not know the duration of a positive event such as enjoying a great movie or a favourite band playing live (so they can feel "as if the fun will never end"), they prefer knowing the duration of negative events, such as the length of a boring movie or loud noises ("I need to know when the suffering will end.") Similarly, specifying the quantity of a food item (e.g. the exact number of potato chips in a bag) has been shown to enhance the enjoyment of the tasty snack, but this effect reverses for unappetizing foods.

Hedonic adaptation: Changes in happiness over time. The term hedonic describes the pleasure or displeasure associated with a thing or experience. Most consumers understand that repeatedly consuming the same product over an extended period of time leads to declines in additional happiness from each additional unit of consumption. This phenomenon is known as ‘hedonic adaptation,’ and it manifests across various domains and objects. Whether receiving a raise, moving to a bigger house, getting a nicer car, consumers will experience a gradual decrease in pleasure over time. Given this inevitable decline in happiness, how might consumers employ strategies to prolong their happiness? Here are six ways to achieve lasting happiness:

Variety: It is well established that variety of consumption is indispensable for prolonged happiness. Consumers can achieve this by switching between different options within or across product categories.

Varying the rate of consumption: Consumption speed influences how much happiness people derive from an experience. Research shows that consumers often consume desirable things too quickly, leading to a faster decrease in enjoyment. Pacing consumption, with short breaks, can delay satiation and allow consumers to savour experiences longer. And yet, many people mistakenly believe slower consumption will reduce their happiness.

Introducing dissimilarity between items: When stimuli are so inherently distinct that they are considered separate items (e.g. listening to music vs. viewing art), variety will not further boost happiness. That said, one can take advantage of the variety between stimuli by mentally grouping varied stimuli into one broader category (e.g. ‘relaxing with music and art.’) Their differences may be perceived as a sign of variety that enhances stimulation and utility.

Perceived scarcity: The perception that access to a product is limited can also enhance consumption enjoyment. This perception is driven by the desire to seize a rare consumption opportunity, causing consumers to focus more on the experience and less on the quantity consumed.

Recent studies have examined how identifying the last/final unit of an experience influences happiness. ‘End experiences’ are associated with a positivity bias, such that consumers perceive final events as more positive due to their signaling of experience conclusion, which fosters a more positive attitude. For instance, researchers found that simply labeling something as ‘the last one’ in a sequence leads to higher ratings. Also, as they approach the end of a long experience, consumers prefer familiar activities over novel ones. Researchers attribute this preference to an increased desire for a personal, meaningful experience as they approach the end of an activity (i.e. ‘a nice ending’).

Focusing on less-susceptible stimuli: Individuals can also make stimuli become less susceptible to hedonic adaptation. For instance, researchers have found that the sentimental value of an item — characterized by positive associations with significant others or special events — is less likely to decrease over time. Consequently, items with greater sentimental value are less prone to hedonic adaptation. Consumers can add sentimental value to an experience by linking the stimuli with a special event or focusing on the act of enjoying the activity to the best extent possible. For instance, dining out with family can be perceived as ‘treating loved ones’ (the act of) rather than just ‘enjoying a delicious meal together’ (the outcome). Likewise, taking the kids on a summer vacation can be framed as ‘celebrating family time,’ and a weekly spa treatment can be framed as ‘celebrating a week’s hard work.’

Acts of giving: Another example of lasting happiness can be found in acts of giving. Studies show that people adapt more slowly to repeated acts of giving and helping others than they do to rewarding themselves. Giving may exhibit greater resistance to hedonic adaptation because it increases attention to the act rather than the outcome, allowing individuals to continuously derive happiness from the actions.

The role of sensitization. Although consumers believe that they will feel satiated after having the same or similar experience multiple times (e.g. the 10th bite of chocolate is not as appetizing as the first), in some cases, hedonic intensity actually escalates over time — a phenomenon known as ‘sensitization.’ For example, people may become more irritated by their annoying college roommate over time. Unlike hedonic adaptation — which leads to a decline in enjoyment — sensitization involves a heightened response to repeated exposure.

Recent research has explored sensitization in food consumption. One study looked at how mental imagination of an item can lead either to craving or satiation depending on the scenario. When consumers vividly imagine a single exposure to a particular food, they experience a heightened appetite, similar to when they take an actual first bite. However, imagining the act of eating repeatedly is akin to actually eating the food many times, which leads to habituation, reducing desire for that food.

Sensitization is more prevalent for complex experiences such as foods that combine various flavours (e.g. wine), as consumers are motivated to explore additional flavours with each subsequent bite or sip. Sensitization can also extend across different food categories. One study found that consuming certain foods can trigger cravings for complementary items. For example, after eating a hamburger or cereal, consumers often crave cola or milk because they pair so well together.

Factor 3: Option effect

People often believe that the more options they have, the better. A store that offers 36 different fruit preserves seems more appealing than one that offers only six. However, consumers don’t always prefer more choices or options. They are often less satisfied when choosing from a more extensive (vs. smaller) assortment size, a phenomenon known as ‘choice overload.’ A larger assortment raises expectations about finding the perfect product, which often leads to disappointment when the chosen option doesn’t fully meet those expectations.

But large assortment size doesn’t always lead to choice overload. Its effect depends on many factors. Generally, choice overload is more likely to occur when consumers experience difficulty in choosing, want to minimize decision-making effort, focus on avoiding the worst option, lack confidence in their choice, and when they cannot change their choice. For example, when the choices are difficult or unpleasant (like selecting insurance plans), more options often lead to greater dissatisfaction.

The internal factors: Prediction errors

We will now turn our attention to internal factors — prediction errors — that prevent consumers from accurately predicting the emotional impact of consumption events and cause them to choose options that fail to maximize their well-being.

Prediction error 1: Impact bias: One of the most common mistakes we make when predicting our future happiness is ‘impact bias’ — the tendency to overestimate how strongly future events will affect our emotions and how long the effect will last, such as happiness derived from getting a promotion or buying a new car. While these events do bring joy, happiness fades much faster than anticipated, leaving people surprised by how little impact such milestones actually have on their long-term happiness.

So, why do we get this wrong? Part of the reason is something called ‘focalism.’ When imagining the future, we focus too much on the main event and forget about all the other factors that influence our emotions. For example, consumers picture how amazing it will feel to relax on a beach vacation, but they don’t account for the stress of packing, travel and sunburns. Memory bias is another reason. Consumers struggle to remember their previous forecasting mistakes, believing they "knew all along" how they would feel after an event, even when their original prediction was inaccurate.

Although people tend to overestimate the emotional impact of future events, they also appear to underestimate the emotional impact when those events change in quantity. For example, people might donate a large sum of money to save one panda when they see a cute picture of it. However, when asked to save four pandas, their satisfaction likely won’t increase fourfold, because the emotional impact of four pandas won’t be much stronger than that of one panda. This is known as "scope insensitivity," whereby people might experience strong affective responses toward one item, but their feelings do not increase proportionally as the quantity of items increases.

Scope insensitivity is even more pronounced when people lack information about how much is at stake (e.g. the total number of pandas needing help.) If they were aware of this, their donations for saving one versus four pandas might become more proportional. This shows that when people are given clearer distribution information (e.g. range, mean), they can better adjust their evaluation to reflect the actual scale of the issue.

Interestingly, impact bias can sometimes be beneficial. For example, overestimating the emotional payoff of success or failure can motivate people to work harder. University students, for instance, might exaggerate how good they’ll feel about beating their peers in a task, which pushes them to perform better.

Prediction error 2: Belief bias: Consumers generally believe that variety will lead to greater happiness, and while it can certainly reduce boredom, they tend to overestimate how much novelty they need. For instance, choosing a brand-new product over one we already love might seem like a better option, but in reality, the familiar choice might bring us just as much, if not more, satisfaction. Recent findings discovered a so-called "newness premium": consumers are willing to pay extra for something simply because it’s labeled as "new," even if it is essentially the same as an older option. To avoid paying an unnecessary newness premium, consumers can use their creativity to vary consumption methods. For example, enjoying familiar snacks like popcorn using chopsticks might be more fun than using one’s hands.

On the flip side, there is a strong tendency to avoid repeating the same experiences due to the assumption that doing so will quickly lead to boredom (e.g. eating the same flavor of yogurt every day.) However, research tells a different story. Consumers often fail to see that there is a break between repeated experiences (i.e. 24 hours between two breakfasts.) As a result, they waste time and money on searching and acquiring novel, yet similarly enjoyable experiences. People often underestimate the richness that comes from revisiting familiar activities, where they can discover new details and make deeper connections.

To help overcome this belief bias, researchers suggest viewing repeat consumption as a way to gain mastery or expertise. When people feel like experts in something, they tend to enjoy it more, even if it’s the same experience over and over. Framing familiar activities this way can increase long-term happiness and lead to a deeper appreciation of repeated pleasures.

Prediction error 3: Projection bias: When making decisions, we often rely too much on how we feel in the moment, assuming that our current state will match how we’ll feel in the future. This is called "projection bias," and it can lead us to make poor choices because we fail to account for how different we might feel later.

For instance, when consumers are in a ‘hot’ state — hungry, tired or emotionally charged — they tend to project those same feelings into future situations. One study found that people who visit a college campus on a sunny day are more likely to enroll, because their current feelings about the weather influence their predictions about what studying at that college will be like, even though the weather is irrelevant to their long-term experience. Similarly, when people buy tickets for an outdoor movie, their choice is often influenced by the current weather — even though the weather on the event day might be completely different.

Projection bias also shows up in social situations. Research indicates that people often project their own emotions or preferences onto others, assuming that others feel the same way. For example, investors who are feeling fearful tend to assume that other investors are also fearful, which leads them to sell stocks prematurely. However, this bias disappears when they believe the stock’s value is based on objective factors rather than the emotions of other investors.

Interestingly, this bias isn’t just about feelings — it can also influence behaviours like gym attendance or romantic relationships. Studies have found that people overestimate their future gym attendance based on how motivated they feel in the moment. Similarly, in relationships, when things are going well, people project that optimism into the future, and when things are going poorly, they assume the future will also be bleak.

Prediction error 4: Consumer self-control: Consumers often face a dilemma between indulging in immediate gratification or exercising self-control for long-term benefits. For example, they may need to decide whether to eat a delicious dessert or stick to their salad for long-term health, or whether to play video games or study for the final exam. These intertemporal choices involve trade-offs between costs and benefits distributed over time.

Vices offer consumers immediate pleasure during consumption but may incur costs in the long run (e.g. the immediate pleasure and long-term harm of an unhealthy diet and lifestyle.) In comparison, virtues are associated with immediate costs but offer benefits in the long term (e.g. foregoing immediate pleasure in exchange for long-term benefits.). Consumers understand that virtues are more beneficial for their future states than vices, and they want to consume them to feel better about themselves, but they often struggle to resist vices.

So, how can consumers be motivated to consume more virtues and fewer vices? Following are four strategies from recent studies.

Consumption rate/amount: For a given quantity to be consumed, when consumption happens over a longer time frame (e.g. two weeks, lower rate), consumers are more likely to choose indulgent options like cake. In contrast, when consumption happens over a shorter period (e.g. one-week, higher rate), consumers are more inclined to choose healthier options like wheatgrass juice. This is because slower consumption reduces the perceived negative impact of vices, while faster consumption amplifies the benefits of virtues.

Price promotions: The type of price discount also influences preferences for virtue and vice choices. Specifically, consumers prefer bonus packs over price discounts when buying healthy (virtue) foods, but the opposite is true for indulgent (vice) foods. A bonus pack of a vice food can make people feel guilty because it means consuming more of the unhealthy item, while a price discount reduces consumption guilt.

Combining virtues and vices: When given a choice between bundles that mix virtues and vices, consumers tend to prefer a bundle with a smaller proportion of vice (e.g. one-third is French fries) over one with a larger proportion of vice (e.g. two thirds are French fries.) Interestingly, they also perceive bundles with smaller portions of vice as healthier but just as tasty as bundles with more vice, satisfying both their health and taste goals.

The sequence of activities: Consumers often think they will enjoy leisure activities more if they finish their work first, believing that work would distract them from fully enjoying leisure. In reality, however, the sequence doesn’t really matter. By continually postponing leisure for work, they may under-consume leisure, which increases the risk of burnout.

Understanding these dynamics can also inform public policies designed to promote healthier behaviours and improve societal well-being. For example, to address obesity, policymakers need to focus on both the type and quantity of food consumed. Food is often categorized as a virtue (healthy) or a vice (unhealthy but tasty), with obesity often linked to the over-consumption of vice foods. One effective intervention could be offering ‘vice-virtue bundles,’ where consumers can enjoy both types without having to choose. Studies show that people are more likely to choose bundles with smaller portions of vice foods and larger portions of healthy options, making it a promising strategy to encourage healthier eating habits.

Understanding the internal and external factors and biases that hinder consumer happiness provides valuable insights for maximizing well-being. As we move forward, integrating these insights into real-world applications holds immense potential to improve well-being.

Businesses and policymakers can leverage this knowledge to design better products, services and policies that align with consumer preferences and enhance well-being. Moreover, individuals can benefit from understanding potential biases, making informed choices, and adopting strategies to mitigate hedonic adaptation and choice overload.

By embracing both the challenges and opportunities ahead, we can pave the way for a future where human biases are not only acknowledged but also harnessed to maximize happiness for all.

This article is an excerpt from their chapter in Fostering Consumer Well-Being: Theory, Evidence and Policy (Springer, 2024). The complete chapter (“Consumer Well-Being in Judgment and Decision-Making”) is available online. This article originally appeared in the Winter 2025 issue of the Rotman Management Magazine.