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This New Money And Happiness Study Is Really Getting Around…

September 14th, 2010 · 14 Comments
Happiness · Incentives

Not surprising: that the Wall Street Journal would pick up a story about new research on the relationship between money and happiness:

The study, which analyzed Gallup surveys of 450,000 Americans in 2008 and 2009, suggested that there were two forms of happiness: day-to-day contentment (emotional well-being) and overall “life assessment,” which means broader satisfaction with one’s place in the world. While a higher income didn’t have much impact on day-to-day contentment, it did boost people’s “life assessment.”

Now we have more details from the study, conducted by the Princeton economist Angus Deaton and famed psychologist Daniel Kahneman. It turns out there is a specific dollar number, or income plateau, after which more money has no measurable effect on day-to-day contentment.

The magic income: $75,000 a year. As people earn more money, their day-to-day happiness rises. Until you hit $75,000. After that, it is just more stuff, with no gain in happiness.

That doesn’t mean wealthy and ultrawealthy are equally happy. More money does boost people’s life assessment, all the way up the income ladder. People who earned $160,000 a year, for instance, reported more overall satisfaction than people earning $120,000, and so on.

“Giving people more income beyond 75K is not going to do much for their daily mood … but it is going to make them feel they have a better life,” Mr. Deaton told the Associated Press.

He added that, “As an economist I tend to think money is good for you, and am pleased to find some evidence for that.”

Surprising: That the author (I assume that it’s the author rather than an editor, since it’s a blog post, but I could be wrong) chose the most misleading title ever: “The Perfect Salary for Happiness: $75,000.” Come on now, Mr. Frank, you know better than that.

Not surprising, at least not to me: When I was a research assistant for Bob Putnam, it was my job to run regressions on a huge survey dataset about social cohesion and trust and whatnot. I noticed that there was a variable called “econsat” in the data that represented the survey respondents’ self-reported economic satisfaction at that particular point in time. I remember trying really hard to find a relationship between that variable and income, either in absolute terms or relative to one’s census tract or whatever, and coming up with nothing. Maybe that just means I’m a crappy researcher, but it also means that, since people were likely thinking about that economic satisfaction on a day to day basis as described above, the findings above are not particularly surprising to me.

Surprising: That Randall Munroe must have at least some of the same Google Reader entries as I do. the latest xkcd comic:

Spooky. And also a good lesson in incentives, no?

Tags: Happiness · Incentives

14 responses so far ↓

  • 1 Thermopylae // Sep 14, 2010 at 10:27 pm

    As a Brooklyn-born philosopher stated, “money is better than poverty, if only for financial reasons.”

    Given the backdrop, Professor Putnam’s bowling book got a bump-up on my Amazon list.

  • 2 Ben Margolis // Sep 15, 2010 at 2:36 pm

    Fascinating. I wonder if this will affect managers’ reward systems. They might want to reconsider monetary bonuses and motivate with purposeful activities instead.

  • 3 Rob // Sep 16, 2010 at 12:37 pm

    This has led me to wonder if this is a relative satisfaction or not. For instance, if a person is wealthy in a small town, and thus better off than others in the town, one could assume that they are “happier” than others. Move that person to a larger center where they are not on top of the earning chain, and I would posit that they would not be happy. I think that the saying is “its better to be a big fish in a small pond than a small fish in a big pond.” thoughts?

  • 4 Amarsir // Sep 17, 2010 at 5:32 am

    Rob, there have been some studies which suggest that income inequality, not simply income level, is causal in happiness and other life effects. But like many studies there are flaws with them and contra-evidence, so I don’t accept them as given. Nevertheless, they do support your idea that it’s all relative.

  • 5 Joao Pedro Afonso // Sep 19, 2010 at 3:15 pm

    Another thought: relative income in relation to yesterday. While the study reported appears to focus on absolute values of income, maybe the frequency of change of it, is also instrumental to happiness.

    My argument runs like this: starting free from any, people tend to commit themselves to fixed or periodical costs they will end to see as obligations or routine (after the novelty wear out… say, the payments for an house, for a car, lessons, etc…). Each periodic payment is a potential source of worries and of course, decrements the available money for spontaneous costs… creating a perception of less wealth than really there is. Raising the income will give more air to breath but only until the person do not commit himself with more periodic costs.

    Do you think this thought has legs to walk?

  • 6 Ben Margolis // Sep 21, 2010 at 1:01 pm

    @Joao Yes, it has legs. My friend has called us a “subscription society.” We have all kinds of periodic payments, like netflix, satellite radio, and the ones you mention. The cheaper you “live” the more money you have for memorable experiences. Maybe you could argue that your happiness will increase by being able to afford to travel and meet up with old friends, keeping relationships going that would make you feel richer. I’ve heard many times that it’s better to be rich in relationships than rich in money.

  • 7 Joao Pedro Afonso // Sep 22, 2010 at 5:37 pm

    @Ben did you read one of the latest Krugman opinions in the New York Times, “The angry rich”? I think there is hints of this “subscription society” there. He jokes about all these very income rich persons who are really really angry because Bush Tax measures aren’t going to be renovated. How can they yell like poor being ripped, he almost asks?… this subscription society could well explain why.

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