Happiness Economics: Can Cash Purchase Happiness?

What Is Happiness Economics?

Happiness economics is a subject of economics that acknowledges happiness and wellbeing as necessary consequence measures, alongside measures sometimes used, comparable to employment, training, and well being care.

Economics emphasizes how particular financial/monetary traits have an effect on our wellbeing (Easterlin, 2004).

For instance, does employment lead to higher well being and longer lifespan, amongst different metrics? Do folks in wealthier international locations have entry to higher training and longer life spans?

In the previous few a long time, there was a shift in economics, the place researchers have acknowledged the significance of the subjective score of happiness as a useful and fascinating consequence that’s considerably correlated with different necessary outcomes, comparable to well being (Steptoe, 2019) and productiveness (DiMaria et al., 2020).

Broadly, happiness is a psychological state of being, sometimes researched and outlined utilizing psychological strategies. We frequently measure it utilizing self-report measures quite than goal measures which might be much less weak to misinterpretation and error.

Together with happiness in economics has opened up a completely new avenue of analysis to discover the connection between happiness and cash.

Andrew Clark (2018) illustrates the variability within the time period happiness economics with the next examples:

  1. Happiness could be a predictor variable, influencing our selections and behaviors.
  2. Happiness may be the specified consequence, so understanding how and why some persons are happier than others is crucial.

Nonetheless, the connection between our habits and happiness have to be higher understood. Regardless that “being pleased” is a desired consequence, folks nonetheless make selections that stop them from turning into happier. For instance, why can we select to work extra if our work doesn’t make us happier? Why are we sad even when our primary wants are met?

An instance of how happiness can affect decision-making

Typically, we would select to not maximize a financial or monetary achieve however place significance on different, extra subjective outcomes.

As an instance: If confronted with two jobs — one which pays nicely however will carry no pleasure and one other that pays much less however will carry a lot pleasure — some folks would favor to maximise their happiness over monetary achieve.

If this determination have been evaluated utilizing a utility framework the place the one valued outcomes have been sensible, then the choice would appear irrational. Nonetheless, this state of affairs means that psychological outcomes, such because the expertise of happiness, are as essential as different socio-economic outcomes.

Economists acknowledge that subjective wellbeing, or happiness, is an important attribute and generally a fascinating consequence that may inspire our decision-making.

In the previous few a long time, economics has shifted to incorporate happiness as a measurable and very important a part of common wellbeing (Graham, 2005).

The consequence is that typical financial questions now additionally take a look at the affect of employment, funds, and different financial metrics on the subjective score and expertise of happiness at particular person and nation ranges.

Concept of the Economics of Happiness

Theory of the economy of happinessThe speculation of the economics of happiness could be summarized as follows (Bruni, 2007):

Happiness is such a significant consequence in society and financial exercise that it have to be concerned in coverage making. The subjective measure of happiness is as necessary as different typical measures utilized in economics.

Many components can contribute to happiness. On this submit, we think about the position of cash. The connection between happiness, or subjective wellbeing, and cash is assumed to be constructive: Extra money means better happiness.

Nonetheless, the connection between cash and happiness is paradoxical: Extra money doesn’t assure happiness (for a superb evaluation, see Graham, 2005).

Particularly, low ranges of earnings are correlated with unhappiness. Nonetheless, as our particular person wealth will increase and our primary wants are met, our wants change and differ of their significance.

Initially, our happiness is affected by absolute ranges of earnings, however at a sure threshold, we place significance on relative ranges of earnings. Understanding how we rank and evaluate to different folks, by way of wealth and materials possession, influences our happiness.

The connection between wealth and happiness continues to extend, however solely to a sure level; at this stage, extra wealth doesn’t assure extra happiness (Easterlin, 1974; Diener et al., 1993).

This can be at odds with our on a regular basis lived expertise. Most of us select to work longer hours or a number of jobs in order that we earn more money. Nonetheless, what’s the level of doing this if cash doesn’t enhance our happiness? Why can we appear to assume that more cash will make us happier?

Historical past of the economics of happiness

The connection between economics and happiness originated within the early Nineteen Seventies. Brickman and Campbell (1971, as cited in Brickman et al., 1978) first argued that the standard outcomes of a profitable life, comparable to wealth or earnings, had no affect on particular person wellbeing.

Easterlin (1974) expanded these outcomes and confirmed that though wealthier folks are typically happier than poor folks in the identical nation, the typical happiness ranges inside a rustic remained unchanged even because the nation’s general wealth elevated.

The inconsistent relationship between happiness and earnings and its sensitivity to essential earnings thresholds make this matter so attention-grabbing.

There’s some proof that wealthier international locations are happier than others, however solely when evaluating the rich with the poor (Easterlin, 1974; Graham, 2005).

As international locations turn into wealthier, residents report larger happiness, however this relationship is strongest when the place to begin is poverty. Above a sure earnings threshold, happiness now not will increase (Diener et al., 1993).

Apparently, folks are inclined to agree on the amount of cash wanted to make them pleased; however past a sure worth, there’s little enhance in happiness (Haesevoets et al., 2022).

Measurement challenges

Measuring happiness precisely and reliably is difficult. Researchers disagree on what happiness means.

It’s not the norm in economics to measure happiness by instantly asking a participant how pleased they’re; as an alternative, happiness is inferred by means of:

  • Subjective wellbeing (Clark, 2018; Easterlin, 2004)
  • A mixture of happiness and life satisfaction (Bruni, 2007)

Moreover, happiness can consult with an acute psychological state, comparable to feeling pleased after a pleasant meal, or an enduring state just like contentment (Nettle, 2005).

Researchers may use totally different definitions of happiness and methods to measure it, thus resulting in contradictory outcomes. For instance, happiness may be used synonymously with subjective wellbeing and may consult with a number of issues, together with life satisfaction and monetary satisfaction (Diener & Oishi, 2000).

It appears contradictory that wealthier nations should not happier general than poorer nations and that rising the wealth of poorer nations doesn’t assure that their happiness will enhance too. What may then be executed to extend happiness?

Can Cash Purchase Happiness? 5 Analysis Findings

What’s the relationship between earnings/wealth and happiness? To reply that query, we checked out research to see the place and the way cash improves happiness, however we’ll additionally think about the restrictions to the constructive impact of earnings.

Cash buys entry; jobs enhance happiness

Overwhelming proof exhibits that wealth is correlated with measures of wellbeing.

Wealthier folks have entry to higher healthcare, training, and employment, which in flip ends in larger life satisfaction (Helliwell et al., 2012). A specific amount of wealth is required to satisfy primary wants, and satisfying these wants improves happiness (Veenhoven & Ehrhardt, 1995).

Rising happiness by means of improved high quality of life is highest for poor households, however that is defined by the place to begin. Entry to important providers improves the standard of life, and in flip, this improves measures of wellbeing.

Most individuals achieve wealth by means of employment; nonetheless, it isn’t simply wealth that improves happiness; as an alternative, employment itself has an necessary affiliation with happiness. Happiness and employment are additionally considerably correlated with one another (Helliwell et al., 2021).

Lockdown on happiness

The World Happiness Report (Helliwell et al., 2021) reviews that unemployment elevated throughout the COVID-19 pandemic, and this was accompanied by a marked decline in happiness and optimism.

The pandemic additionally modified how we evaluated sure features of our lives; for instance, the connection between earnings and happiness declined. In spite of everything, what’s the usage of cash in the event you can’t spend it? In distinction, the affiliation between happiness and having a associate elevated (Helliwell et al., 2021).

Wealthier states smile extra, however is it actual?


If we took a snapshot of happiness and a rustic’s wealth, we’d discover that richer international locations are inclined to have happier populations than poorer international locations.

For instance, based mostly on the 2021 World Happiness Report, the highest 5 happiest international locations — that are additionally rich international locations — are Finland, Iceland, Denmark, Switzerland, and the Netherlands (Helliwell et al., 2021).

In distinction, the unhappiest international locations are those who are typically rising markets or have a decrease gross home product (GDP), e.g., Zimbabwe, Tanzania, and India (Graham, 2005; Helliwell et al., 2021).

At face worth, this is smart: Poorer international locations most definitely produce other components related to them, e.g., larger unemployment, extra crime, and fewer political stability. So, based mostly on this cross-sectional information, a rustic’s wealth and happiness ranges seem like correlated. Nonetheless, over a extra prolonged interval, the connection between happiness and GDP is nil (Easterlin, 2004).

That’s, the subjective wellbeing of a inhabitants doesn’t enhance as a rustic turns into richer. Regardless that the wealth of assorted international locations worldwide has elevated over time, the general happiness ranges haven’t elevated equally or have remained static (Kahneman et al., 2006). This is named a happiness–earnings paradox.

Easterlin (2004) posits 4 explanations for this discovering:

  1. Societal and particular person positive aspects related to elevated wealth are concentrated among the many extraordinarily rich.
  2. Our diploma of happiness is knowledgeable by how we evaluate to different folks, and this relative comparability doesn’t change as country-wide wealth will increase.
  3. Happiness shouldn’t be restricted to solely wealth and monetary standing, however is affected by different societal and political components, comparable to crime, training, and belief within the authorities.
  4. Lengthy-term satisfaction and contentment differ from short-term, acute happiness.

Kahneman et al. (2006) present an alternate clarification centered on the tactic sometimes utilized by researchers. Particularly, they argue that the order of the questions requested to measure happiness and the way these questions are worded have a focusing impact. By the query, the participant’s consideration to their happiness is sharpened — like a lens in a digital camera — and their happiness must be over- or underestimated.

Kahneman et al. (2006) additionally level out that job developments like a elevate or a promotion are sometimes accompanied by a rise in wage and work hours. Consequently, high-paying jobs usually lead to much less leisure time obtainable to spend with household or on hobbies and may trigger extra unhappiness.

Not all that glitters is gold

Intensive analysis explored whether or not a sudden monetary windfall was related to a spike in happiness (e.g., Sherman et al., 2020). The findings have been blended. Typically, having more cash is related to elevated life satisfaction and improved bodily and psychological well being.

This enhance in happiness, nonetheless, shouldn’t be assured, neither is it lengthy. Typically, people even want it had by no means occurred (Brickman et al., 1978; Sherman et al., 2020).

Think about lottery winners. These folks win sizable sums of cash — sometimes extra in depth than a wage enhance — massive sufficient to affect their lives considerably. Regardless of this, analysis has persistently proven that though lottery winners report larger fast, short-term happiness, they don’t expertise larger long-term happiness (Sherman et al., 2020).

Listed here are some causes for this:

  • Earlier on a regular basis actions and experiences turn into much less pleasurable when in comparison with a singular, uncommon expertise like profitable the lottery.
  • Individuals habituate to their new way of life.
  • A sudden enhance in wealth can disrupt social relationships amongst family and friends members.
  • Work and hobbies sometimes give us small nuggets of pleasure over a extra prolonged interval (Csikszentmihalyi et al., 2005). These actions can lose their which means over an extended interval, leading to extra unhappiness (Sherman et al., 2020; Brickman et al., 1978).

Sherman et al. (2020) additional argue that lottery winners who resolve to give up their job after profitable, however don’t fill this newly obtainable time with some kind of significant pastime or curiosity, are additionally extra more likely to turn into sad.

Passive actions don’t present the identical happiness as work or hobbies. As an alternative, if lottery winners proceed to participate in actions that give them which means and require lively engagement, then they’ll keep away from additional unhappiness.

Happiness: Is it temperature or local weather?

Like most psychological analysis, a part of the problem is clearly defining the subject of investigation — a job made extra daunting when the subject falls inside two very totally different fields.

Nettle (2005) describes happiness as a three-tiered idea, starting from short-lived however intense on one finish of the spectrum to extra summary and deep on the opposite.

The primary tier refers to transitory emotions of pleasure, like when one opens up a birthday current.

The second tier describes judgments about emotions, comparable to feeling glad together with your job. The third tier is extra complicated and refers to life satisfaction.

Throughout analysis, totally different definitions are used: Individuals are requested about emotions of (fast) pleasure, general life satisfaction, moments of happiness or satisfaction, and psychological wellbeing. The ideas are comparable however not an identical, thus influencing the outcomes.

6 Fascinating Books and Podcasts on the Matter

Most books on happiness economics are textbooks. Though little doubt very attention-grabbing, they’re not the easy-reading books we desire to suggest.

As an alternative, beneath you will see a variety of books written by economists that discover happiness. These ought to present a great springboard on the general matter of happiness and what influences it, in case any of our readers wish to decide up a extra in-depth textbook afterward.

When you have a happiness guide you’ll suggest, please tell us within the feedback part.

1. Happiness: Classes from a New Science – Richard Layard


Richard Layard, a lead economist based mostly in London, explores in his guide if and the way cash can have an effect on happiness.

Layard does a superb job of introducing subjects from varied fields and framing them appropriately for the reader.

The guide is aimed toward readers from various tutorial {and professional} backgrounds, so no expertise is required to take pleasure in it.

Discover the guide on Amazon.

2. Happiness by Design: Change What You Do, Not How You Suppose – Paul Dolan

Happiness by Design

This guide has a extra sensible spin. The writer explains how we will use current analysis and theories to make small modifications to extend our happiness.

Paul Dolan’s main thesis is that sensible issues can have a much bigger impact than summary strategies, and we must always change our habits quite than our considering.

The guide is a fast learn (airport-perfect!), and Daniel Kahneman penned the foreword.

Discover the guide on Amazon.

3. The Psychology of Cash: Timeless Classes on Wealth, Greed and Happiness – Morgan Housel

The Psychology of Money

This guide shouldn’t be essentially about happiness economics, however it’s shut sufficient to the general theme that it’s value mentioning.

Since most individuals are involved with making more cash, this guide helps educate the reader why we make the selections we do and the way we make higher selections about our cash.

This guide is a worthwhile addition to any bookcase if you’re within the relationship between funds and psychology on the whole.

Discover the guide on Amazon.

4. Happiness: The Science Behind Your Smile – Daniel Nettle


In case you are fascinated by happiness general, then we suggest Happiness: The Science Behind Your Smile by Daniel Nettle, a professor of behavioral science at Newcastle College.

On this guide, he takes a scientific method to explaining happiness, beginning with an in-depth exploration of the definition of happiness and a few of its challenges.

The analysis that he presents comes from varied fields, together with social sciences, drugs, neurobiology, and economics.

Due to its small measurement, this guide is ideal for a weekend away or to learn on a aircraft.

Discover the guide on Amazon.

5 & 6. Desire to pay attention quite than learn?

One in all our favourite podcasts is Intelligence2, the place main specialists in a selected subject collect to debate a selected matter.

Money Can't Buy HappinessOne episode is devoted to the controversy on whether or not money can buy happiness. The debaters don’t restrict themselves to solely the subject of happiness — what it’s, measure it — however lengthen into different sensible subjects comparable to coverage making and the way this may be adjusted to vary the happiness of a inhabitants.

The Happiness LabOne other attention-grabbing spin on the happiness economics matter is how altruism can enhance happiness, particularly by donating cash to others.

This present’s host, Dr. Laurie Santos, argues that we will enhance our happiness by not hoarding our cash for ourselves however by giving it to others as an alternative. In case you are fascinated by this episode, or any of the opposite episodes within the Happiness Lab podcast sequence, then head on over to their web page.

Assets From PositivePsychology.com

There are a number of assets obtainable at PositivePsychology.com for our readers to make use of of their skilled and private improvement.

On this part, you’ll discover a couple of that ought to complement any work on happiness and economics. Because the undercurrent of the subject is whether or not happiness could be improved by means of wealth, a couple of assets take a look at happiness general.

Valued Residing Masterclass

Though data is energy, understanding that cash doesn’t assure happiness doesn’t imply that purchasers will instantly really feel fulfilled and glad with their lives.

For that reason, we suggest the Valued Residing Masterclass, for professionals to assist their purchasers discover which means of their lives. Quite than maintaining with the Joneses or chasing a high-paying job, professionals can assist their purchasers join with their interior which means (i.e., their why) as a solution to discover which means and achieve happiness.

Three free workout routines

If you wish to strive it out earlier than committing, take a look at the Which means & Valued Residing train pack, which incorporates three workout routines totally free.

Beneficial studying

Learn our submit on Success Versus Happiness for additional data on balancing happiness with success, in any area. This matter is poignant for readers who conflate happiness and success, and can information readers to higher perceive their relationship and the way the 2 phrases affect one another.

For readers who surprise about altruism, you’ll discover it attention-grabbing that quite than hoarding, you may enhance your happiness by means of volunteering and donating. On this submit, the writer, Dr. Jeremy Sutton, does a wonderful job of approaching altruism from varied fields and offers wonderful assets for additional studying and real-life software.

Our final suggestion is for readers who wish to know extra about measuring subjective wellbeing and happiness. The submit lists varied checks and apps that may measure happiness and the general historical past of how happiness was measured and outlined. It is a good place to begin for researchers or clinicians who wish to discover happiness economics professionally.

17 Which means & Valued Residing Workout routines

Lastly in the event you’re on the lookout for extra science-based methods to assist others uncover which means, take a look at this assortment of 17 validated which means instruments for practitioners. Use them to assist others select instructions for his or her lives in alignment with what is actually necessary to them and may make them pleased.

A Take-House Message

As you’ve seen in our article, the proof overwhelmingly clarifies that cash doesn’t assure extra happiness … nicely, long-term happiness.

Our happiness is relative since we evaluate ourselves to different folks, and over time, as we turn into accustomed to our wealth, we lose all of the happiness positive aspects we made.

Cash can ease monetary and social difficulties; consequently, it may drastically enhance folks’s residing circumstances, life expectancy, and training.

Enhancements in these outcomes have a knock-on impact on the general expertise of 1’s life and the alternatives for one’s household and youngsters. However, higher alternatives don’t assure happiness.

Our intention with this submit was as an instance some complexities surrounding the connection between cash and happiness.

Understanding that cash doesn’t assure happiness, we suggest inexpensive strategies to enhance one’s happiness:

  • Spend time with associates.
  • Domesticate hobbies and pursuits.
  • Keep lively and eat wholesome.
  • Attempt to dwell a significant life.
  • Give some love (go smooch your associate or tickle your canine’s stomach).

Diamonds may be a lady’s finest pal, however cash is a good climate one, at finest.

We hope you loved studying this text. Don’t overlook to obtain our three Which means and Valued Residing Workout routines totally free.