We've been talking about this puzzle of why we get happiness so wrong, and now we're going to talk about a second reason that we tend to be really bad in terms of predicting our happiness, a second kind of bias of the mind that messes us up. In this bias of the mind is that we tend to think in terms of reference points, we don't tend to think of events or things in our life as absolutely good, we tend to think of them relative to some other thing. That's what a reference point is. It's just this salient, often irrelevant standard against which we're comparing whatever is going on in our life. It turns out that reference points often served to make us not as happy as we could be. One of my favorite examples of reference points came up in the context of sports, came up in the context of the Olympics. Wondering if you all know who this person is here, any guesses who this Olympian is? Michael Phelps, yeah, like multi decorated Olympian, this is one of his many gold medals that he won. This was a race in Beijing. He won the gold medal and you can see one of the gold medal pretty happy, he's smiling. The question is, what's going on with the emotions of the other folks on the medal stand, what's going on with the emotions of the silver medalist? Now, you might predict the silver medalist. He's not maybe as happy as the gold medalist, but he's like second best on the entire planet. He's probably thrilled, but maybe not as thrilled as Michael Phelps. Let's look at what's going on. This is Laszlo Cseh, the Hungarian swimmer, and you can see from his facial expression, it's not like he's slightly less happy than Michael Phelps. He looks like WTF. He looks like not very happy at all. We might predict then that if we're going to go to the other person on the medalist stand, or the bronze medalist who in this case was the Americans' runner Ryan Lucky, he would look even more upset than the silver medalist. That's what we'd predict, but actually if we look at Ryan Lucky, he's thrilled. In fact, he actually might look more happy than Michael Phelps, so what is going on? Objectively, absolutely gold should be better than silver, should be better than bronze. Gold should be smiling the most, then silver then bronze. Why is silver looking so upset and bronze is looking so happy? Well, to understand that we need to think about reference points. What's the reference point of the silver medalist? Who is he comparing himself against when he's thinking, if only I had gotten gold? It's a very salient reference point. In this case, he might have been like 0.2 seconds off from getting gold and that's how he's comparing. He's not thinking I'm second best if everyone else on the planet, I beat seven billion people to get up here. He's thinking, nope, not gold, I feel like crap, but let's look at the bronze medalist. He's not thinking the same thing. What's his reference plane? Let's probably not gold. There were multiple people in-between him and gold, but there's another very salient reference point for him, which is like if he was just like two seconds slower, he might be going home completely empty handed, like you might not get a metal at all. He is stoked, he is like, oh my gosh, relative to that reference point of nothing, I am killing it and he is excited. Now, you might think I just happened to pull one Michael Phelps' picture that showed this effect, but researchers have gone out and videotaped medalists on the stand and afterwards to look to see the effect of reference points, and here's what they find if you rate people's happiness, they're like rating this from videos, both immediately when they find out their score or and on the medal stand later and what you find is that the happiness rating of the bronze medalist is always higher, and if you carefully analyze the muscles that silver medalists are using in their face because we use different muscles if we're like frowning or mad or whatever, the muscles they're using, show facial expressions like contempt, disgust, is not just that they're slightly less happy, they're actively experiencing negative emotions. This is pretty sad because again, in absolute terms, they're second best on the planet, but they feel like complete crap. This is the problem of reference points and explains why lots of stuff we think is going to make us happy, winds up not making us as happy as we think.