Money and Happiness

Abstract

Does money buy happiness, or does happiness come indirectly from the higher rank in society that money brings? We tested a rank-income hypothesis, according to which people gain utility from the ranked position of their income within a comparison group. The rank hypothesis contrasts with traditional reference-income hypotheses, which suggest that utility from income depends on comparison to a social reference-group norm. We found that the ranked position of an individual's income predicts general life satisfaction, whereas absolute income and reference income have no effect. Furthermore, individuals weight upward comparisons more heavily than downward comparisons. According to the rank hypothesis, income and utility are not directly linked: Increasing an individual's income will increase his or her utility only if ranked position also increases and will necessarily reduce the utility of others who will lose rank.

Is the desire for status a fundamental human motive? A review of the empirical literature.

“…Consistent with this notion, multiple studies conducted in different countries have found that individuals experience elevated SWB when they enjoy a higher income than others in their local geographic area. For example, a study of "regions" of approxi mately 5,000 people in England found that individuals who had a higher income than their neighbors had higher life satisfaction (Boyce, Brown, & Moore, 2010). Similar links between local relative income and SWB have been found in studies using various reference groups and measures, including: a study of neighbor hoods (e.g., neighboring 200 households) in Denmark that mea sured individuals' satisfaction with their general economic condi tions (Clark, Westergard-Nielsen, & Kristensen, 2009); a study of metropolitan areas in the U.S. that measured general happiness (Hagerty, 2000); a study of geographic areas of roughly 100,000 people in the U.S. that also measured happiness (Luttmer, 2005); a study of U.S. counties that measured life satisfaction (Firebaugh & Schroeder, 2009); and a study of U.S. states that measured happiness (Blanchflower & Oswald.…”

The interactive role of income (material position) and income rank (psychosocial position) in psychological distress: a 9-year longitudinal study of 30,000 UK parents

“…While the distance from the mean hypothesis states that both the number of people with higher incomes and the distance between incomes is relevant (Bjornstrom, 2011), the income rank hypothesis (Boyce, Brown and Moore, 2010) alternatively states that the psychological implications of people's ordinal rank position within the income distribution is important (Subramanian and Kawachi, 2004).…”

Economic Migration and Happiness: Comparing Immigrants’ and Natives’ Happiness Gains From Income

“…One main reason is that money is in part a positional good, a sign of status: if one can raise one's position in the income distribution, an increase in happiness is likely to follow (though for others it might decline - Boyce et al 2010). But economic growth cannot raise everyone's status, and if economies grow while individuals' positions remain unchanged, happiness is likely to remain unchanged.…”

“…The third process is social comparison, and happiness researchers note a trend in which people whose income rises alter their reference groups for comparison: instead of deriving satisfaction from giving salience to one's improved position relative to a stable reference group, increased income leads people to compare themselves to a wealthier reference group (Clark et al 2008), perhaps in excess of a tendency to weight upward comparisons more heavily (Boyce et al 2010). As indicated above, a common psychological dynamic concerning the relative dimension of income undermines the potential for income increases to lead to greater happiness.…”