Does more money make us happier?

Probably up to a point, but relative income matters more.

Most research on the effect of absolute levels of income is correlational and inconsistent, partially because it deploys many different measurements of happiness in different contexts and partially because several mechanisms may operate simultaneously in different directions.

  • One landmark study showed that both life satisfaction and emotional well-being increased at a diminishing rate up to $75,000 per year, but only life satisfaction increased beyond that threshold (Kahneman and Deaton 2010). More recent work has shown that experienced well-being continues to increase well beyond $75,000 (Killingsworth 2021). Other work shows that life satisfaction satiates as well and can even begin to decline beyond certain income levels (Jebb et al 2018).
  • A common theme is that higher income is associated not necessarily with greater happiness but with less sadness (Kushlev et al 2015; Hudson et al 2016), and relatedly that the primary gap between the rich and the poor is in the intensity of unhappiness (Pirla and Quoidbach 2021). This is consistent with research showing that higher income mitigates the pain associated with divorce, sickness, and being alone (Kahneman and Deaton 2010) and also the notion that people adapt to higher income with greater expectations (the "hedonic treadmill"), which constrains further gains in happiness (Kudrna and Kushlev 2022).
  • The plausibly causal research done in this area tends to focus on windfalls like lottery winners, but there, too, the literature finds extremely inconsistent results (Kim and Oswald 2020).

A somewhat more robust finding is that people tend to be happier when they have more money relative to others.

  • The ranked position of an individual’s income appears to be a better predictor of general life satisfaction than absolute income (Boyce et al 2010; Noy and Sin, 2020). Evidence from New Zealand shows that people do not appear to be affected by the variance of the distribution and are much more sensitive to their income rank at work than they are amongst their neighbors (Noy and Sin, 2020). This is consistent with research showing that the income–satisfaction gradient is steeper in countries with more equal income distributions because a fixed increment in income confers a greater increment in social position in a more equal society (Quispe-Torreblanca et al 2020).
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