Money and Happiness: This Should Surprise No One

Money Happiness

An interesting chart from The Economist:

THE Easterlin paradox, named for economist Richard Easterlin, reckons that higher incomes do not necessarily make people happier. Since Mr Easterlin first made his conjecture in 1974, economists’ views have evolved: money matters, studies suggest, but only up to a point. Become rich enough, and a bigger paycheque no longer leads to more happiness. Yet a new NBER working paper by economists Betsey Stevenson and Justin Wolfers, both of the University of Michigan, casts doubt on this chestnut. They use a trove of data generated by Gallup, a polling firm, from its World Poll. Gallup asked respondents around the world to imagine a “satisfaction ladder” in which the top step represents a respondent’s best possible life. Those being polled are then asked where on the ladder they stand (from zero to a maximum of 10), and how much they earn. Though some countries seem happier than others, people everywhere report more satisfaction as they grow richer. Even more striking, the relationship between income and happiness hardly changes as incomes rise. Moving from rich to richer seems to raise happiness just as much as moving from poor to less poor. One never really grows tired of earning more.

3 responses to “Money and Happiness: This Should Surprise No One

  1. I think it’s pretty interesting that they chose a log scale for the income axis. Basically, a steady line as we see here means that some amount of happiness X requires $1,000 for the first X, then $2,000, then $4,000, etc. If you make the curve a normal arithmetic progression along that axis, you see a curve that rapidly flattens out. For example, if you look at these example curves on wikipedia, they are using a graph like the one in the upper right quadrant. If you plotted the numbers straight, as in the upper-left quadrant, you’d see that straight blue line suddenly bend very flat, as predicted by Easterlin.

    • I think it’s pretty interesting that they chose a log scale for the income axis.

      Damn!

      I didn’t see that at all. You’re right.

      The Brooking’s Institute has weighed in:

      Claims of satiation have been made for comparisons between rich and poor people within a country, comparisons between rich and poor countries, and comparisons of average well-being in countries over time, as they grow. The time series analysis is complicated by the challenges of compiling comparable data over time and thus we focus in this short paper on the cross-sectional relationships seen within and between countries. Recent work by Sacks, Stevenson, and Wolfers (2013) provide evidence on the time series relationship that is consistent with the findings presented here.

      To preview, we find no evidence of a satiation point. The income–well-being link that one finds when examining only the poor, is similar to that found when examining only the rich. We show that this finding is robust across a variety of datasets, for various measures of subjective well-being, at various thresholds, and that it holds in roughly equal measure when making cross-national comparisons between rich and poor countries as when making comparisons between rich and poor people within a country.

      http://www.brookings.edu/research/papers/2013/04/subjective-well-being-income

      I’m still pissed I missed the scale on the X.

  2. Pingback: Lying with scales | Poison Your Mind

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