Does money buy happiness? That’s a question of ideological belief, rather than science

Does having more money equate to more happiness? It’s an intriguing question we’ve all considered, and a perennial topic that comes up in news and popular debate. But from the perspective of science, its periodic appearance in the news should be considered surprising.

Having published a fair amount of research on the topic over the years, I am usually pretty confident that the latest study reported in the news will reveal little that is fundamentally new and which will change how I relate to money. Typically, the research will be a rehash of what has long been known on the topic, with some slight advance that makes it publishable in a scientific journal. It is hardly a newsworthy event. However, the regular appearance of money and happiness in the news is more often about supporting an ideological belief than presenting unbiased science.

And so seems to be the case for the latest money and happiness research that appeared in the news earlier this year. In contrast to previous research showing that there is a satiation point somewhere around $75,000 where additional income isn’t linked to more happiness, this new research claims that happiness keeps on rising well beyond that income point. The implication being that having more money brings more happiness and one can never really have enough of the stuff.

Except that we can have enough, and the point where more income becomes largely irrelevant in bringing greater happiness is actually even lower than $75,000. What we have long known on the topic of money and happiness is that there is a relationship, but that the relationship is weak.

The basic no-frills conclusion on the money and happiness question is that having more money can be useful in helping to ease the misery of those who are impoverished, struggling to meet their basic needs, or under severe financial strain – but rarely does it serve to buy much in the way of happiness beyond that. There are other things in life – relationships, mental and physical health, social and emotional skills, having a purpose – that are far more important).

Our biased opinion

It’s not obvious at first, but the basic implication of the latest research is that money isn’t that important beyond a certain income point. The research was accompanied by an eye-catching graph (see below left) that makes having a high income seem much more important than it actually is.

The graph on the left looks convincing, but on closer inspection it is not. First, the bottom income axis is non-linear (at each interval, rather than income being evenly spaced, it doubles – $15,000, $30,000, $60,000 and so on). When the axis is depicted as a standard linear axis – as in the adapted graph on the right – we get the standard diminishing effect of income on happiness. Second, 0.1 is a very small amount of happiness. Third, these effects cannot be taken as causal – causal effects are typically smaller still.

It is not entirely clear why the author depicted the results of their research in the way they did. However, what is clear is that if, as with the adapted second graph, the first-glance take-away conclusion was that “money still isn’t that important for happiness”, then there certainly wouldn’t have been much of a splash in the news.

There are two important psychological effects going on here. First, there is publication bias, where the outcome of a study influences the decision as to whether it will be published and reported it in the news – studies that show something “new” are more likely to be published and reported on than those that tell us something we already knew. Give me any dataset and I’ll show you that the effect of income on happiness is minimal beyond a certain point, but of course, that is not newsworthy.

The newness of the latest research boils down to a unique dataset that surveyed a large enough number of higher-earning people (33,391) – more than previous studies – to get an effect that is statistically, though not practically, distinguishable from zero.

An increase in happiness of less than 0.1, as implied in first graph, from doubling one’s higher than average income (for example, $60,000 to $120,000, which itself isn’t likely at all, let alone doubling up from $120,000 to $240,000, or to $480,000), is not a happiness increase to get excited about. Plus, it’s not even a causal relationship, with causal money and happiness studies typically giving effects that are smaller still (this study, for example, shows $100,000 lottery win gives a happiness increase of just 0.016).

Second, there is the classic confirmation bias, the tendency to interpret information in a way that is consistent with our beliefs. When something doesn’t fit our thinking we’re inclined to dismiss it. While we may well produce a very reasoned argument for the dismissal, it will likely be more a matter of belief than a fair assessment of the science.

We are all prone to confirmation bias and may not even know we’re doing it most of the time. You could be doing it now reading this article. And I’m not immune to it either. For example, it’s even possible I’m doing it by pointing out what seem like “reasonable” concerns in how the latest research has been reported. However, it is worth pointing out here that since I spent 10 years training as an economist where I had the belief that money is core to happiness well and truly drummed into me that I’m biased in the “money does buys happiness” direction. It was through years of careful research that I discovered that it was very far from true.

What I’ve come to understand after years of research on the topic is that confirmation bias is particularly relevant to the “does money buy happiness” question. If we have spent a good chunk of our lives chasing money, with our current economic system being entirely predicated on the belief that having more money is more important than most other things, then we’ll uncritically lap up any evidence that supports that belief.

And so, the conclusion that money really does buy happiness has to keep showing up in the news to keep that ideological belief alive. But it is a belief we are going to need to get beyond if we want to live happier and more fulfilling lives.

***If you liked this blog article, I have written others on money and happiness based on my research which can be found here.

Also, do feel free to comment on and/or share (referencing me) any of my articles.

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