Readers of Forbes may wonder, are those billionaires who can afford Feadship yachts, Graff diamonds and Lamborghinis really happier than the rest of us? Individual happiness, of course, is a complex thing. But those of you who are curious about the happiness of populations en masse will want to read a new study by University of Michigan professors Betsey Stevenson and Justin Wolfers.
Relying on worldwide data from Gallup and other sources, Stevenson and Wolfers determine that the wealthier people are, the more satisfied they are with their lives, at least when you look at nationwide figures. They also find, contrary to what many economists believe, that there is not a point of wealth satiation beyond which happiness levels off.
Do you feel like you know that already? Among economists, it has not been a settled point. In 1974, University of Southern California economics professor Richard Easterlin proposed a theory that came to be known as the Easterlin Paradox. He posited that within a country, be it the United States or Sri Lanka, richer people were happier than poor people. The paradox came when you compared rich countries with poor ones. Easterlin couldn’t find any evidence that people in rich countries like the U.S. were happier than people in poor countries like Sri Lanka.
Then Stevenson and Wolfers came along and in a2008 paper, refuted the Easterlin paradox. They found that while the first part of Easterlin’s theory was true—within a country, rich people were happier than poor people—the populations of rich countries, as a whole, were happier than the populations of poor countries.
Still, economists debated whether there was a satiation point, beyond which people didn’t get any happier. A number of scholars, including London School of Economics professor Richard Layard, argued that once people had enough to meet their basic needs, somewhere between $8,000 and $25,000 or the equivalent of that in various spots around the world, happiness leveled out. Though Layard didn’t dispute that within a country, billionaires tended to enjoy their riches and demonstrate more happiness than their less-fortunate counterparts who were, say, single mothers working as home health aides, he believed that if you averaged out income in a given country, there was a satiation point, beyond which the country could not achieve greater nationwide happiness.
Stevenson and Wolfers started probing that idea, suspecting it was false. Using data on 155 countries from Gallup, the Pew Global Attitudes Survey, the World Bank and other sources, they found that as countries increase their GDP per capita, the more happiness levels rise. There is no point where that levels off. The richer people get, the more satisfied they are with their lives. “If there is a satiation point,” they write, “we are yet to reach it.”
The new study also takes another look at Easterlin’s theory that within countries, rich people are happier than poor people. They wanted to test whether there is a satiation point beyond which the rich don’t get any happier. Using a 2007 Gallup poll, they found people with the highest incomes report the greatest degree of happiness and satisfaction with their lives. For instance, only 35% of people making less than $35,000 say they are “very happy,” versus 100% of people making more than $500,000.
In their paper’s conclusion, Stevenson and Wolfers include a caveat: Nobel prize-winning psychologist Daniel Kahneman, together with economist Angus Deaton, has written that in the U.S., happiness levels off at incomes of around $75,000 a year. Stevenson and Wolfers don’t take issue with Kahneman and Deaton’s findings, though they note that Kahneman and Deaton were looking at different measures than those captured by the Gallup polls. Kahneman and Deaton focused on everyday experiences, using a poll that asked people about their positive and negative emotional states on the day before they answered the polling questions. While Stevenson and Wolfers relied on more sweeping polling questions about how satisfied people are with their lives overall, Kahneman and Deaton looked at so-called “affective” questions about how people felt at a specific moment in time. “The affective measure raises a puzzle,” says Wolfers. “No one has resolved that puzzle. It’s an interesting, open question.”
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