The Frontal Cortex

Money and Happiness

For more than 30 years, it has been a truism of social science that, once our basic needs are met, money doesn’t buy happiness, or even upgrade despair. In one well-known survey, people on the Forbes 100 list of the richest Americans were only slightly happier than the American public as a whole; in an even more famous study, done in 1978, a group of researchers determined that 22 lottery winners were no happier than a control group. This is commonly referred to as the Easterlin paradox, after the economist Richard Easterlin who first proposed it in 1974.

But new evidence suggests that the Easterlin paradox needs some modification:

Last week, at the Brookings Institution in Washington, two young economists — from the University of Pennsylvania, as it happens — presented a rebuttal of the paradox. Their paper has quickly captured the attention of top economists around the world. It has also led to a spirited response from Mr. Easterlin.

In the paper, Betsey Stevenson and Justin Wolfers argue that money indeed tends to bring happiness, even if it doesn’t guarantee it. They point out that in the 34 years since Mr. Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. “The central message,” Ms. Stevenson said, “is that income does matter.”

If anything, Ms. Stevenson and Mr. Wolfers say, absolute income seems to matter more than relative income. In the United States, about 90 percent of people in households making at least $250,000 a year called themselves “very happy” in a recent Gallup Poll. In households with income below $30,000, only 42 percent of people gave that answer. But the international polling data suggests that the under-$30,000 crowd might not be happier if they lived in a poorer country.

Obviously, one should be extremely skeptical of any survey that purports to measure such vague terms as “happiness” or “life satisfaction”. The blinkered belief that a few multiple questions can accurately summarize the general tenor of our life is yet another reminder that Auden was dispensing some wise advice in “Under Which Lyre”:

Thou shalt not answer questionnaires
Or quizzes upon World-Affairs,
Nor with compliance
Take any test. Thou shalt not sit
With statisticians nor commit
A social science.

That said, even if the Easterlin paradox is empirically dubious, there are still some interesting disconnects between money and “happiness,” whatever that is. For instance, since 1950, the number of Americans describing themselves as very happy has declined from 7.5 percent to 6 percent. Even more interesting is fact that, as many countries become more prosperous, depression becomes significantly more common. Other studies have found that rates of depression and anxiety are twice as high among upper-class, suburban teens compared to the national norm. Obviously, differing rates of diagnoses play a big part in these statistics, but I’m not sure if they explain everything.

The lesson is that affluence isn’t an unqualified good. I’m personally drawn to the work of people like Robert Frank, who argue that part of the problem is conspicuous consumption. When someone wears a Rolex watch, they don’t make themselves happy – their dopamine/pleasure neurons habituate very quickly to the luxury good – but they do manage to raise the material expectations of everybody wearing less expensive watches. These people now feel inferior, since their Timex has been devalued by the costlier item. (Such luxury items are known as “positional goods,” since part of their appeal is that they signal your social position.) Multiply this same psychological phenomenon across a full range of consumer products–from clothes to cars, stereos to shoes–and you can begin to see the “hedonic treadmill” that afflicts people in developed countries. Not only do their brain cells automatically adapt to their state of wealth, but those same neurons are constantly being bombarded with a new set of expensive expectations. Of course, not everybody can afford a Rolex or a Lexus, which means that we are constantly being disappointed.

Nevertheless, I still think it’s pretty ridiculous to look at free-market capitalism through the prism of amorphous moods like “happiness” or mental illnesses like depression. The real benefit of affluence is the gift of self-expression. If you have money, you can buy the precise clothes that suit your individual style, or fill your home with furniture that reflects your idiosyncratic taste. You can get the cell-phone that captures your soul and stuff it with all of your favorite music. These acts of consumption might not make us “happy,” but they do provide some important psychological benefits, even if those benefits are tough to measure on a survey.


  1. #1 NJ
    April 16, 2008

    Shorter Jonah:

    Money cannot buy happiness; it will, however, buy you the kind of unhappiness you prefer.


  2. #2 chezjake
    April 16, 2008

    I think that another difficult to measure thing that needs to be factored in to people’s assessment of their happiness is their perception of whether or not society is providing them with a fair shake and opportunities to change things in their personal lives (whether they actually try to change anything or not). No one who feels “cornered” or “stuck” in their situation is likely to report themself as happy or satisfied.

    And there’s another question. Has anyone researched whether there is any difference or correlation between people’s levels of reported happiness and levels of reported satisfaction with their lives?

  3. #3 Mary
    April 16, 2008

    This reminds me of Michael Marmot’s work:

  4. #4 Will
    April 16, 2008

    It definately needs to compared to studies of countries said to have the highest living standards & the ‘happiest’ people, such as Norway, Sweden (which have some of the highest taxes in the world.)

    Some countries allow more more personal freedoms, more services to their citizens (better education, beter health care, etc etc) as well as more freedom of expression (such as gay rights, racial equality, etc etc!)

    How much would this differ for different subgroups within the same country or area?


  5. #5 Rachael
    April 16, 2008

    I think it is a bit odd that researchers would assume that because *very* wealthy people (lottery winners, upper 5% income) are not happier than average Americans that wealth does not bring happiness. Sudden money aquisition is associated with guilt (pressure from friends and family) and those who are super wealthy might have had to make extreme sacrifices in their life to get there.

    I’d like to a see a full “dose response” curve!

  6. #6 MattXIV
    April 16, 2008

    I’m personally drawn to the work of people like Robert Frank, who argue that part of the problem is conspicuous consumption. When someone wears a Rolex watch, they don’t make themselves happy – their dopamine/pleasure neurons habituate very quickly to the luxury good – but they do manage to raise the material expectations of everybody wearing less expensive watches

    I think you’re clinging to a view in spite of the evidence here.

    If this were true, we’d find that relative wealth is more important than absolute wealth in determining happiness – which is the opposite of what the study found. The depression disparities can be explained by access to testing and social attitudes towards admitting mental health services. The 1950 to present comparision doesn’t tell us much of anything, since there has been so many other changes in the same time frame.

    Perhaps it’s time to put this hypothesis to bed.

  7. #7 Vnend
    April 17, 2008

    Tangentially: the Rolex bit reminded me of an incident last weekend. I was playing in a single table satellite (10 person poker tournament) on Saturday. A couple of hands in, the guy on my right is talking about his company, how much money he (they?) made last year, etc… I was only half listening to most of it (following the play of folks still in hands) but it was clear that some of the folks at the table found it annoying.

    After about twenty minutes or so of play the guy was knocked out either 8th or 9th. After he left a couple of the other players were talking about him and, well, his talk. One of them made a comment to the effect of “Yeah, right. $2million last year and he’s wearing a $40 watch.”

    Obviously the speaker thinks of watches as jewelry, and assumes that anyone who had that kind of money would feel the same way. But the guy specifically said his company was a web site hosting and communications firm. I, like most techies that I know, think of watches as *tools*, not decoration, and pick them based on functions rather than looks. I am currently wearing a Casio I picked up for $20 on sale; it has the multiple alarms and countdown timer that I want, and I can hear them (the Timex I had before it was a little to quiet and pitched wrong for me to hear it in all situations.) I would love to find a watch that did everything I wanted, and would pay for the features; but unless I build it I don’t expect to find one (I have looked, trust me.)

    Not to mention that some of us don’t think that Rolexes are all that hot a piece of jewelry either; too big, too heavy. I do have a Movado, which is more to my tastes, but it was a gift from my last job that I have never worn.

    I didn’t get to comment on it to him in the later stages of the tournament as he wasn’t around much longer than the guy he was commenting on…

    “Happiness” is a funny thing. I am ‘happier’ after this trip than I was after a similar one in January. I made money this time and didn’t then, but since making money means I won tournaments, and losing money in January was because I was losing more than usual, it can be hard to say which is the larger contribution. I have seen a fair bit written on the need to be able to weather the financial swings of professional poker play; not much has shown up commenting on the need to be able to weather the emotional swings as well.

  8. #8 Eric
    April 17, 2008

    I have a real problem with your conclusion — do you really see the benefit to affluence being the self-expression allowed by choosing among over-priced brand names? I think the argument that capitalism creates a certain subjectivity that desires that kind of an identity is a lot more powerful, and if you really want to express your self, make your own clothes. THe identity of which you speak is often experienced more as a burden than as self-expression, hence the need to keep up with the Joneses.

  9. #9 Alan
    April 17, 2008

    It inspires skepticism whenever one researcher proclaims a “paradox,” or another claims to have resolved it. If a paradox is a contradiction arising out of a single or more apparently true logical statements, then in this case, what are the apparently true statements? That more stuff is preferable to less stuff? Neoclassical economic theory is a happy hunting ground for paradoxes, as it is incomplete in its assumptions about human nature and sociology.

    A few years ago Barry Schwartz, in an interesting book, wrote of a distinction distinction between two types of consumers: Maximizers and Satisficers. Faced with a consumption choice, Satisficers strive to make an adequate decision they can live with. Maximizers, however, strive to convince themselves they have made the best decision. A Maximizer will agonize prior to making a choice, and then tend to experience remorse once the choice has been made. Maximizers’ habits of thought tend toward rumination and anxiety.

    Adam Smith observed that, “the desire of food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage and household furniture, seems to have no limit or certain boundary.” –The Wealth of Nations

    But as the Spanish proverb avers, “Better joy in a cottage than sorrow in a palace.”

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