Happiness rethink

by Tim Harford

Financial Times
October 22, 2010

For many years the received wisdom in economics has been much the same as that in Buddhism: money doesn’t make you happy (see, for instance, “The Seven Secrets of a Happy Life”, FT Weekend Magazine, August 28/29).

I should probably modify my statement though. Economists who study the subject have tended to believe that beyond some minimum, absolute income has little effect on happiness. In any given society, the rich tend to be happier than the poor, but citizens of rich countries are not notably happier than citizens of middle-income countries, and while we are richer than our parents were at our age, we are no happier.

This finding has been called the Easterlin Paradox, after Richard Easterlin, the economist who first observed it back in the 1970s. The paradox has an explanation: what matters is keeping up with the Joneses. If we care only about our place in society, the pattern Easterlin discovered in the data is readily explained.

But two recent pieces of research suggest a different conclusion. “The concept of happiness has to be reorganised,” says Daniel Kahneman, a psychologist who won the Nobel memorial prize in economics in 2002. Much happiness research focuses on “life satisfaction”, where researchers ask people whether they’re satisfied with life as a whole. But Kahneman studies mood: do people, moment by moment, feel content, relaxed or joyful – or stressed, depressed or frustrated?

Kahneman and Angus Deaton, in research published in August in the Proceedings of the National Academy of Sciences, looked at these two measures of happiness in half a million responses to a daily survey of Americans. They found that money is correlated with life satisfaction, but beyond an income of about $75,000, it doesn’t improve your mood: so whether or not Easterlin is right depends on what you mean by happiness.

More

Read the Paper by Kahneman and Angus

Read the Paper by Sacks, Stevenson and Wolfers [Ungated]