Can money buy happiness?

Higher incomes frequently lead to happier people, but lower incomes face greater happiness inequality.

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The World Happiness Report, a collaboration of major universities in the United States, the United Kingdom, and Canada, has produced annual data on the world’s happiest countries. Finland has topped the list for six years, averaging 7.804 in 2023.

The report, which is part of a large body of literature that investigates people’s subjective well-being and the factors that contribute to its improvement or decline, calculates average responses to the so-called Cantril question, which asks participants to rate their lives on a scale of 0 to 10, with 0 representing the worst possible life and 10 representing the best possible life.

Many subjective well-being research are based on averages, which are easy to quantify and compare. However, Yale SOM’s Gal Zauberman and former postdoctoral researcher Bouke Klein Teese Link, now a lecturer at King’s College London, share a healthy skepticism of the mean. They believe a lot is buried when you look at averages, a highly robust removal of unhappiness.

Klein Teeselink said, “invoking the well-worn joke of the statistician who drowned in a river with an average depth of three feet, There’s a lot hidden when you look at averages, You can have an average level of well-being of seven, and you can get to that average with only sevens, or with nines and fives. We might care very differently about those scenarios.”

Klein Teeselink and Zauberman investigated subjective well-being distribution in more detail. What they discovered surprised them. Previous research has demonstrated that when money rises, so does the standard of living. However, researchers have shown that, as incomes rise, variability in well-being diminishes as well: Wealthier people are more comparable to each other in their well-being than persons with less financial means. They utilized the same Cantril ladder question as the World Happiness Report.

According to the research, the narrowing of the range of happiness for wealthier people is completely due to a decrease in the proportion of persons who rate their well-being adversely. Their findings could have repercussions for policymakers who rely on averages.

He said, “If you give money to poor people, not only are you lifting people in terms of their well-being, but you are lifting the poor people who are the least happy. We should arguably care more about alleviating the misery of the truly unhappy than helping a person who lives at a nine or a 10.”

Klein Teeselink and Zauberman used Gallup-Sharecare Well-being Index responses from over two million US survey participants between 2008 and 2019. They were astounded when they first saw a graph depicting the relationship between income, well-being, and well-being inequality. They discovered that the higher the income group, the narrower the fluctuation in well-being and the more favorable overall well-being.

Two graphs depicting the mean happiness, happiness standard deviation, and happiness range at various income levels. The “Anna Karenina graph” was the name given to it. The second figure is considerably more eye-catching. It demonstrates the narrower variety in well-being and the more significant positive well-being in higher income brackets.

Molecular structure of 1,3-bis(3’,4’-di(2-butyloctyloxy)[1,1’-biphenyl]-4-yl)urea; schematic illustration of columnar molecular aggregates; and concept illustration of writing, rewriting, saving, and erasing in the AP-FCLC system. Credit: Keiki Kishikawa / Chiba University

Klein Teeselink and Zauberman highlight in their study and in conversation that their findings are correlational rather than causative. They are, nonetheless, confident in their outcomes. They discovered other trends in the data besides their basic conclusions that the range in well-being narrows as earnings grow and that the narrowing is related to a diminishing number of unhappy persons. For example, sick people with lower earnings get a “much larger happiness boost” from increased income than happier people.

Their findings show that the positive relationship between income and average well-being might underestimate the welfare gains of helping people experiencing poverty since unhappy persons are disproportionately represented in the lower-income groups. They also demonstrated that those with higher incomes are less affected by adverse shocks, such as health problems, aging, and unemployment.

The researchers continue their research on well-being, which might be used as another defense for redistribution policies that help low-income people.

Researcher said, “The traditional argument is that receiving one dollar lifts the well-being of poor people more than losing one dollar lowers the well-being of rich people. We show that, in addition, one dollar given to poor people disproportionately lifts the well-being of very unhappy people in the poor income category. Hence, as policymakers care more about alleviating misery than boosting bliss, this strengthens the argument for redistribution.”

Journal Reference:

  1. Bouke Klein Teeselink, Gal Zauberman, etal.The Anna Karenina income effect: Well-being inequality decreases with income. Journal of Economic Behavior & Organization. DOI: 10.1016/j.jebo.2023.05.036