How Happy Am I? Don’t Ask

Given the task of predicting how satisfied someone is likely say they are with his/her life, and armed with information about that person’s age, gender, race, income, marital status, education and employment status, the single piece of information that should inform that prediction more than any other is the person’s income[1].Life satisfaction, is the response that one might give to the following question: All things considered, how satisfied are you with your life as a whole these days? In fact, this is precisely the question the survey firm Gallup uses when it collects data for its World Poll of Economic Behaviour in the section covering well-being. Such a question encourages you to take a step back from your immediate thoughts or concerns and consider your situation in a bigger picture. You will think about your family, your education, health, or work, your proximity to your life goals, etc. As all of these things can be furthered or bettered using money, it is not surprising that the richest people in the more than 140 countries survey by Gallup are among the happiest. It should also not surprise that the people in richer countries, on average, express higher life satisfaction ratings than people in poorer countries.

The positive relationship between income and well-being is remarkably stable when money is measured on a logarithmic scale[2]. This means that in order to enjoy the same increase in happiness experienced by someone in a poor country whose income doubles from $10 per day to $20 per day, someone in a rich country would also have to see her income double. This leap might prove to be a little more challenging for the wealthy-country inhabitants, but as long as this pre-condition is met there is no evidence that well-being stops rising at any particular level of income. The same pattern is visible in the data within individual countries: the wealthy members of the population express greater satisfaction with their lives than the poorer members and, on a logarithmic money scale, there is no sign that happiness satiates with rising income. It appears, therefore, that more money always has the effect of prompting people to at least describe themselves as having a higher life satisfaction, irrespective of how much wealth a person or a country already has.

Income does not explain all of the change in well-being, of course. A question that begins “All things considered…” will almost automatically encourage you to compare your life with that of friends, siblings, and peers, perhaps to people in other parts of the country or in other countries, to people in other states of health or physical security, or even to yourself in the past. As a rule, though, our most salient yardsticks are people who are similar to us. A labourer on a minimum wage will not compare himself to the millionaire CEO, but rather to other labourers whose salary or conditions might be better or worse. Similarly, although we might have sympathy for people in other parts of the country whose homes have been flooded by a freak rainstorm, or for fellow citizens being held hostage by separatist guerrillas in Latin America, or for refugees fleeing civil war in the Middle East, actually comparing ourselves to them is a stretch because their situation is abstract and lacks saliency. So while we might be fleetingly pleased not to be those people, the impact on our life satisfaction judgements might be more modest. What is more, the simple act of making social comparisons will almost always depress our well-being because of loss aversion.

When we compare ourselves to someone else, we will conclude that we are either better or worse off. However, the discovery we do not measure up tends to bring us more frustration and anxiety than the recognition of our superiority will bring satisfaction and pride – even if the gap in both directions is exactly the same. Kahneman & Tversky estimated this asymmetry between perceived gains and perceived losses to be in the order of two-to-one. If we look around, we will always see better and lesser persons than ourselves, so we will outperform our chosen benchmark just as frequently as we underperform. The net result of repeated comparisons therefore will be an accumulation of disappointment, frustration and anxiety. The likely effect of relative evaluations of income is not to change the slope of the curve defining the relationship between absolute income and life satisfaction, but simply to shift it lower.

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[1] Oswald,A., & Wu,S., (2009) Well-being across America: Evidence from a random sample of one million US citizens

[2] Sacks DW, Stevenson B, Wolfers J., (2012) The new stylized facts about income and subjective well-being. Emotion. 2012 Dec;12(6):1181-7. doi: 10.1037/a0029873.

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