Money and Happiness

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.

[1]  H. S. Lepper.  Use of Other-Reports to Validate Subjective Well-Being Measures , 1998 .

[2]  Gordon D. A. Brown,et al.  Decision by sampling , 2006, Cognitive Psychology.

[3]  Brent R. Moulton.  An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit , 1990 .

[4]  J. Kaprio,et al.  Life satisfaction and suicide: a 20-year follow-up study. , 2001, The American journal of psychiatry.

[5]  Ryan T. Howell,et al.  The relation of economic status to subjective well-being in developing countries: a meta-analysis. , 2008, Psychological bulletin.

[6]  P. Ekman,et al.  The Duchenne smile: emotional expression and brain physiology. II. , 1990, Journal of personality and social psychology.

[7]  Erzo F. P. Luttmer.  Neighbors as Negatives: Relative Earnings and Well-Being , 2004 .

[8]  T. Kornienko.  A Cognitive Basis for Cardinal Utility , 2004 .

[9]  A. Clark,et al.  Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles , 2007 .

[10]  W. Groot,et al.  Overpayment and earnings satisfaction: an application of an ordered response Tobit Model , 1999 .

[11]  Ed Diener,et al.  The relationship between income and subjective well-being: Relative or absolute? , 1993 .

[12]  E. Diener,et al.  Subjective well-being. , 1984, Psychological bulletin.

[13]  K. Fliessbach,et al.  Social Comparison Affects Reward-Related Brain Activity in the Human Ventral Striatum , 2007, Science.

[14]  J. Duesenberry,et al.  Income, Saving, and the Theory of Consumer Behavior , 1950 .

[15]  Nattavudh Powdthavee.  How important is rank to individual perception of economic standing? A within-community analysis , 2009 .

[16]  A. Alesina,et al.  Inequality and Happiness: Are Europeans and Americans Different? , 2001 .

[17]  A. Oswald,et al.  Does Wage Rank Affect Employees Well-Being? , 2005 .

[18]  Ed Diener,et al.  Subjective Well‐Being: The Convergence and Stability of Self‐Report and Non‐Self‐Report Measures , 1993 .

[19]  Richard E. Lucas,et al.  Discriminant validity of well-being measures. , 1996, Journal of personality and social psychology.

[20]  Niels Westergaard-Nielsen,et al.  Economic satisfaction and income rank in small neighbourhoods , 2019 .

[21]  Richard E. Lucas,et al.  Income and well-being: How big is the gap between the rich and the poor? , 2009 .

[22]  B. Mellers.  ' Fair " Allocations of Salaries and Taxes , 2004 .

[23]  A. Oswald,et al.  Satisfaction and comparison income , 1996 .

[24]  Sara van de Geer,et al.  The Relativity of Utility: Evidence from Panel Data , 1985 .

[25]  R. Veenhoven,et al.  Happiness in nations: Subjective appreciation of life in 56 nations 1946–1992. , 1993 .

[26]  M. Hagerty.  Social comparisons of income in one's community: evidence from national surveys of income and happiness. , 2000, Journal of personality and social psychology.

[27]  E. Bilancini,et al.  Ordinal vs Cardinal Status: Two Examples , 2007 .

[28]  A. Ferrer-i-Carbonell.  Income and Well-being , 2002 .

[29]  R. Easterlin.  Does Economic Growth Improve the Human Lot? Some Empirical Evidence , 1974 .

[30]  Douglas H. Wedell,et al.  Reference Price and Price Perceptions: A Comparison of Alternative Models , 2001 .

[31]  M. Villeval,et al.  Effort and Comparison Income: Experimental and Survey Evidence , 2006, SSRN Electronic Journal.

[32]  M. Fordyce,et al.  A review of research on the happiness measures: A sixty second index of happiness and mental health , 1988 .

[33]  R. H. Smith,et al.  Intrapersonal and social comparison determinants of happiness: a range-frequency analysis. , 1989, Journal of personality and social psychology.

[34]  Allen Parducci,et al.  Happiness, Pleasure, and Judgment: The Contextual Theory and Its Applications , 1995 .

[35]  R. Easterlin.  Will raising the incomes of all increase the happiness of all , 1995 .