Tuesday, July 31, 2012

The Apparent Conflict between Money and Happiness

One of the most elusive, yet highly coveted elements of existence is happiness. The real mystery is not what attributes and traits are necessary to attain happiness, but instead how to acquire those elements. There appear to be four critical psychological elements for a happy existence: autonomy, competence/achievement, connection and self-esteem. The role of all of these elements in facilitating happiness is understandable. First, autonomy underlies one of the greatest gifts and advantages of human existence, conscious freedom, the ability of an individual to make his/her own choices. It is difficult to believe that a person could be genuinely happy if they are unable to make decisions for themselves. The importance of achievement is self-explanatory as even if one has the freedom to make decisions, if nothing meaningful is accomplished from that freedom there is little reason to have it. Such a conclusion is akin to the Samuel Clemens quote of, “The man who does not read good books has no advantage over the man who cannot read them.” In addition it does not take a psychologist to conclude that when an individual succeeds in his/her endeavors it will create a greater sense of pride and esteem versus those times when an individual fails.

Connection is also rather self-explanatory as humans are very social creatures that tend to shun the darkness and isolation, so finding closeness to other human beings is important on two levels. First, this ‘need’ to be social is derived from an evolutionary origin for the world was once a much more savage and dangerous place for man, thus union of manpower and skills dramatically increased the probability of survival. Clearly if survival is enhanced by these teams of individuals, it would be wise to establish these groups even if there was no original underlying genetic predisposition motivating their formation. While the world may not be as dangerous as it was in the past, formation of groups still generates benefits through breadth of skill acquisition and deployment.

Second, human beings frequently need to associate commonality between those they interact with to motivate and feel comfortable with the interaction. These commonalities may diminish some of the uniqueness and diversity of these associated individuals, but also increases the probability of a positive interaction and reassurance that one is not alone or outcast. Finally typically the more confidence an individual has the happier they will be in life. With the characterization of these key elements the next step is to cultivate methodologies and strategies to isolate and enhance these elements.

When reviewing the four critical elements one methodology that immediately jumps to mind to achieve these elements is to become wealthy. Clearly the more money one has the greater the level of autonomy because the number of available opportunities one can choose from increases with the amount of money one has available. Society has determined in a mass-scale approval that the accumulation of wealth is a significant accomplishment that should be aspired to, thus the acquisition of wealth can be viewed as a significant accomplishment potentially validating one’s existence. In addition money should also improve the aspect of connection for the greater number of opportunities an individual can partake in, the greater the level of interaction one can have with different individuals creating more and deeper relationships with other people. Finally self-esteem should be considerably larger in people with significant wealth than those without significant wealth both as a measure of accomplishment, as mentioned above, and as a measure of self-importance as unfortunately in our society the more money an individual has the more importance they are given.

Remarkably, numerous studies reveal that this logical conclusion with regards to the relationship between happiness and money is not correct, at least to a certain extent. Most studies that attempt to correlate wealth and happiness reveal that once a certain ceiling threshold is attained, usually an annual amount of 40,000 - 50,000 dollars, there is little increase in happiness as wealth continues to rise. 1-5 So where is the breakdown between the theory that predicts a corresponding increase in happiness with relation to an increase in wealth and the polling studies that indicate happiness leveling off after a certain point regardless of the amount of wealth acquired?

Four reasonable theories jump to mind to explain this apparent contradiction. First, as individuals gain money they are unwilling or unable to utilize the money to enhance the defined elements that increase their overall happiness. This failure could occur because they do not necessarily know about the elements that drive happiness or they do not know how to correlate those elements to their greater amount of wealth. Therefore, they become the individual that elects not to read good books despite having the ability to read at a college level.

Second, there is an increase in negative behavior and events associated with greater wealth that acts as a counterbalance to the happiness enhancement effects. The increase in negative events is not something to be immediately dismissed because one could attest to an increase in stress with an increase in funds due to a greater sense of responsibility to properly distribute the resources among family members and acquaintances who may request funds. Such a situation can be stressful, but the money belongs to the individual and the final say for the distribution of such funds is that person’s alone and as long as a logical and rational reason exists to support whatever decision made there is no reason to stress over the outcome or how relatives will respond to the decision. An addendum to this negative interaction would be high profile wealth would become a larger target of crime increasing stress through the need for higher levels of security and/or bodyguards.

Third, the polling information could simply be misrepresented in that individuals of a lower wealth standing are mischaracterizing or lying about their total levels of happiness and in reality are more unhappy than what they indicate in this polling information. If this were the case then there would be a larger proportional increase in happiness corresponding to an increase in wealth, thus creating a stronger connection in wealth increasing happiness.

Fourth, while wealth may open the doors of opportunity, the relative system of evaluation primarily used by humans to make judgments on their environment acts as a negative catalyst with regards to money and happiness. The unfortunately reality is that humans judge themselves not on the bases of what they have accomplished, but on what they have accomplished relative to other humans. Such an evaluation system fuels the ego and inherently creates division among humans of unequal standing. Therefore, as one gains wealth one moves further away from the number of meaningful interactions that can be had with other individuals. It is difficult to enjoy an opportunity involving people when one believes he/herself to be superior to others participating in it, thus the human interaction elements of the opportunity flips from positive to negative. Individuals also seem to not savor a reward when given the knowledge that another has also received a similar award.6-9

This monetary ‘betterment’ mindset has been demonstrated both on small empirical scale, with individuals becoming less compassionate after handling money,10 and large empirical scale as the more wealth an individual has the less charitable that individual will be.11 Also the wealth of opportunities available to wealthy individuals may reduce the overall meaning in a given experience, a malaise mindset of ‘that’s all’ could take over. Basically the more extravagant opportunities that become available to wealthy individuals reduces the meaning of the less extravagant opportunities. Unfortunately for wealthy individuals their lives are far more populated by non-extravagant opportunities than extravagant ones. Sadly the wealthy may attempt to change these ratios by gorging themselves on extravagant opportunities, actions that not only cheapen the novelty of the opportunity, but also further push them away from a majority of other individual interactions leaving these wealthy individuals only the opportunity to interaction with very like-minded individuals.

A side question regarding these surveys and studies is the issue of missing linkers in occupational responsibility. Some believe that these happiness studies do not take into consideration the trade-offs involved for jobs with high salaries such as working hours, time spent away from family and loved ones, time spent commuting to and from work, etc. These additional responsibilities increase stress and decrease happiness which may counter-act increases in happiness that stem from the higher salary.

This explanation may have been valid in the past before the era of computers and Internet, but with the way income is distributed in present day it is difficult to view these ‘responsibilities’ as a significant negative component to happiness versus those with lower paying jobs. Modern day specialization has increased efficiency increasing production of the modern higher-salary worker. Unfortunately for most of them that additional efficiency has not been proportionally rewarded through an increase in salary due to the corporate structure.

The simple fact is ask who has more stress in their job individual A who works 2 jobs spanning a 16-hour day just to be able to eat or individual B who works on Wall Street and the answer is rather obvious. One could make the argument that the only jobs that still fit the above description regarding high work with high salary are general practitioners in the medical field and ER doctors because of the large number of patients that need to been seen with a wide variety of diagnostic demands. Incidentally it is not surprising then that there are shortages in these two particular professions.

Other studies seem to support the notion of happiness to human interaction in that when individuals are given the opportunity to redistribute a monetary prize to another person those that do report a higher rate of happiness.12 However, if such an outcome were to suggest correlation between giving money to others and happiness three possible conclusions can be drawn. First, giving away the prize money does indeed accomplish a psychological shift bringing the awarder and the awardee closer together increasing social closeness/connection resulting in greater happiness. Second, there is no real change in social closeness, but instead losing the money reduces the ability of the awarder to partake in some of the more socially isolating opportunities that wealthy individuals have available to them, thus avoiding the lose of sensitivity to the joy elements of less monetary dependent activities. Third, awarding the prize bolsters the ego of the awarder with the mindset of viewing him/herself as being better than the awardee (because he had the ability to give up the money), thus increasing self-worth and happiness.

Sadly based on above discussion the reality of option three being the primary explanation for this increased happiness associated with giving money more than likely increases proportionally to income. This rationality may be part of the reason that wealthy individuals donate so little relative income to charity in that charitable giving is only seen through the scope of ego and most wealthy individuals already view themselves as better than less wealthy individuals, thus there is no reason to ‘confirm’ that belief by giving money to charity.

Overall when looking at the situation objectively the theory that greater wealth begets greater happiness is actually quite sound. Therefore, if people are not happier when acquiring greater wealth they are consciously sabotaging themselves by either generating artificial stresses or not properly utilizing their money to expand and enhance the key attributes of happiness. So apparently the real key to happiness is to be a saboteur instead embracing specific characteristics of uniqueness, strength and conscious freedom in order to capture these happiness elements.


1. Diener, E, and Biswas-Diener, R. “Will money increase subjective well-being?” Social Indicators Research. 2002. 57(2): 119-169.

2. Layard, R, Mayraz, G, and Nickell, S. “The marginal utility of income.” Journal of Public
Economics. 2008. 92(8): 1846-1857.

3. Campbell, A, Converse, P. and Rodgers, W. The Quality of American Life:Perceptions, Evaluations, and Satisfactions. 1976. New York: Russell Sage Foundation.

4. Diener, E, et Al. “Subjective well-being: three decades of progress.” Psychological Bulletin. 1999. 125: 276-302.

5. Headey, B, and Wearing, A. Understanding Happiness: A Theory of Subjective Well-Being. 1992. Melbourne: Longman Cheshire.

6. McBride, M. “Relative-income effects on subjective well-being in the cross-section.” Journal of Economic Behavior and Organization. 2001. 45: 251-278.

7. Stutzer, A. “The role of income aspirations in individual happiness.” Journal of Economic Behavior and Organization. 2004. 54(1): 89-109.

8. Ferrer-i-Carbonell, A. “Income and well-being: an empirical analysis of the comparison income effect.” Journal of Public Economics. 2005. 89: 997-1019.

9. Knight, J, Song, L, and Gunatilaka, R. “Subjective Well-being and its Determinants in Rural China.” China Economic Review. 2009. 20(4): 635-649.

10. Quoidbach, J. “Money Giveth, Money Taketh Away: The Dual Effect of Wealth on Happiness.” Psychological Science. 2010. doi: 10.1177/0956797610371963 .

11. Vohs, K, et Al. “The Psychological Consequences of Money.” Science. 2006. 314: 1154-1156.

12. Dunn, E, et Al. “Spending Money on Others Promotes Happiness.” Science. 2008. 319: 1687.

No comments:

Post a Comment