What We’ve Learned About Money and Happiness

Economist Richard Easterlin died several weeks ago. During 1974, as a scholar at the University of Pennsylvania, he published the benchmark study on money and happiness. He lived long enough to see his conclusions challenged and to defend them.

The Easterlin Paradox

Long ago, Dr. Easterlin told us that once our basic needs are satisfied, more income beyond $75,000 brings no more happiness:

More recently, he further explained

“Even though I’m happier because my income is higher, I’m less happy because everyone else is going up too…So the result is, because of social comparison, people fail to enjoy improvement in income as a source of happiness.”

Other Studies

Kahneman and Deaton

In another paper (2010), Nobel laureates Daniel Kahneman and Angus Deaton concluded that we plateau somewhere between $60,000 and $90,000. As income rises to as much as $90,000, we get happier. After though, earning more, we feel no better.

Killingsworth

Then, further complicating the answers, we’ve had a University of Pennsylvania researcher reporting that more income correlated with more happiness. Using his “Track Your Happiness” app, Matthew Killingsworth had participants express how happy they felt at random times during the day. When the app “pinged,” they had to answer questions that included their position on a “very good” to “very bad.” feelings scale.

These were the Killingsworth conclusions:

Then, to all of this, we can add still more research

Kahneman and Killingsworth

Trying to decide if we do or do not plateau, Kahneman and Killingsworth observed a happy group and those that are unhappy. The happy people continue feeling better as their wealth ascends. But the individuals that have more sadness tendencies are positively affected until annual income hits $100,000. And then, they are the ones that plateau.

Or, as Dr. Killingsworth explained, “…if you’re rich and miserable, more money won’t help. For everyone else, more money was associated with higher happiness to somewhat varying degrees.” Adding more detail, the arbiter of the study said, “…For those in the middle range of emotional well-being, happiness increases linearly with income, and for the happiest group the association actually accelerates above $100,000.”

Blanchflower

Meanwhile, economist David Blanchflower looked at age. Asking how our happiness changes as we get older, he concluded that everyone is threatened by “peak misery” when they are 47 or 48 years old. Gender appears not to matter. Neither does affluence or the GDP. But it does depend on your country. In developed nations the nadir is at age 47.2 while it happens a year later in developing countries.

Stevenson and Wolfers

With Stevenson and Wolfers, we need to take a baby step away from happiness to life satisfaction.

Calling their data a satisfaction ladder, people who live in countries with a higher per capita GDP tend to be more satisfied with their lives:

The Numbers

An Empower study actually gave us precise numbers:

Our Bottom Line: The Economic Significance of Happiness

At this point we should consider a 2023 NBER paper that includes why economists care about happiness. Explaining, they initially identify short-run happiness like elation and the long-run happiness of a baseline mood. Predictably, our short-term happiness provides information about our preferences (and I assume our demand). By contrast, looking at the long run takes us to policy issues.

But it all began with Richard Easterlin.

Below, in his 90’s, he looks back at his work:

My sources and more: Today’s update summarizes and quotes some of our econlife posts (including here and here) from the past decade. I also recommend this Easterlin obituary from the New York Times.