Whenever research questions are embroiled in personal debates about the way to live a good life, then you know that you’re about to witness a scrap. And if that wasn’t enough for a robust fight, then the money-happiness link speaks to grander questions about whether we should give up on our chase of GDP growth and replace it with the pursuit of happiness (not quite the point David Cameron was recently making, but the same audience he was appealing to).
But personal and political dogmas aside, does money really have no effect on happiness – obviously beyond the point at which material needs are satisfied?
A paradox no more
My reason for posting on this is a fascinating piece in PNAS by Angus Deaton and the Nobel prize-winning Daniel Kahneman – more of which in a minute. But for those of you who haven’t tracked the earlier debate, there has been a claim termed the ‘Easterlin paradox’ that rich countries don’t get happier as they get richer. This is vividly shown in the following chart for the US (in my case taken from Layard 2005 via Albor):
While the Easterlin paradox has been widely debated, Betsy Stevenson and Justin Wolfers a few years ago launched a scathing attack on the idea that income is not associated with happiness. Based on some relatively simple but exhaustive research, they argue that “the facts about income and happiness turn out to be much simpler than first realized:
1) Rich people are happier than poor people.
2) Richer countries are happier than poorer countries.
3) As countries get richer, they tend to get happier.”
Their main paper is available here and there’s also a more recent summary of reaction to their argument, but to summarise the most interesting points from their extensive (six-part!) Freakonomics blogging:
- Rich countries are happier than poor countries, both currently and in the recent past. However, the effect of average income is only constant on a log scale – that is, a 10% rise in average income has a constant effect on happiness, which means $1000 has a much greater effect on happiness in poor countries than in rich countries. (They flag Angus Deaton’s work here). On a normal scale it looks like the effect of income disappears in rich countries, but on a log scale you get a surprisingly nice straight line.
- In any given country, rich people are happier than poor people – much happier. Wolfers quotes Robert Frank here: “It’s actually an astonishingly large difference. There’s no one single change you can imagine that would make your life improve on the happiness scale as much as to move from the bottom 5 percent on the income scale to the top 5 percent.”
- Over time within countries – the most striking original demonstration of the Easterlin paradox – it generally seems that economic growth is associated with increased happiness. This effect is not that strong, but Wolfers argues “All told, there are probably more time series suggesting that growing G.D.P. is related to growing happiness than there are suggesting the opposite. Thus we conclude that the time series evidence is both weakly supportive of a happiness-income link, and also fragile. And even if these data don’t convince you that there is a strong connection between G.D.P. and happiness, they also shouldn’t convince you that they are unrelated.”
Happiness, pleasure or what?
This is all by way of a long prelude to a study by Kahneman and Deaton in PNAS. To the extent that I’d thought about it, I’d always assumed that happiness was a reasonably coherent thing – that is, if money buys happiness of one sort, it buys happiness of other sorts as well. What K&D show, however, is that this is not the case. (Stevenson and Wolfers briefly touch on this in their paper/final Freakonomics post, but fundamentally their analyses are primarily about reported life satisfaction).
The clearest demonstration of this is the following chart, which looks at the relationship of income (on a log scale) and four measures of happiness – ‘positive affect’ (the average of yes/no responses on happiness, enjoyment, and frequent smiling/laughter), ‘blue affect’ (the average of worry and sadness), reported stress, and life satisfaction (using the Cantril ladder).
There’s two main points here. Firstly, income matters for all four measures of happiness/wellbeing. Secondly, though, there are differences between life satisfaction and wellbeing – while life satisfaction continues to increase at high income levels, emotional wellbeing flattens out. They conclude, “lack of money brings both emotional misery and low life evaluation; similar results were found for anger. Beyond ∼$75,000 in the contemporary United States, however, higher income is neither the road to experienced happiness nor the road to the relief of unhappiness or stress, although higher income continues to improve individuals’ life evaluations.”
A further interesting point in K&D is that some risk factors for sadness & worry have greater effects in poorer people than others. For example, in unadjusted analyses, having a headache the previous day leads to 20% (percentage points) more worry in richer people, but 32% more worry in poorer people. This leads us to think about why money matters, in both reducing the chances of bad events happening, and helping us to cope with those events when they do happen.
There’s all sorts of further checks needed on these results (to do with floor/ceiling effects, question interpretation in different income groups, international comparisons and the like). But if this is true, then we need to think very carefully about exactly what type of happiness/wellbeing we’re most interested in. Stevenson and Wolfers seem to be right that economic growth leads to life satisfaction – but if growth has a weaker relationship with our daily emotional experiences, then perhaps life satisfaction isn’t as important as we think it is.
All of which reminds me of a fabulous series of lectures by financial regulator and substantial thinker Adair Turner at the LSE last year, on the relationship of growth to wellbeing – I hope to blog about these in future, but if I don’t get a chance to, then the first and third lectures are perhaps the most interesting talks I’ve heard in the last couple of years.