Link Between Income And Happiness Is Mainly An
Illusion
July 1, 2006
While most people believe that having more income would make them happier,
Princeton University researchers have found that the link is greatly exaggerated
and mostly an illusion.
People surveyed about their own happiness and that of others with varying
incomes tended to overstate the impact of income on well-being, according to a
new study. Although income is widely assumed to be a good measure of well-being,
the researchers found that its role is less significant than predicted and that
people with higher incomes do not necessarily spend more time in more enjoyable
ways.
Two Princeton professors, economist Alan B. Krueger and psychologist and Nobel
laureate Daniel Kahneman, collaborated with colleagues from three other
universities on the study, being published in the June 30 issue of Science. The
new findings build on their efforts to develop alternative methods of gauging
the well-being of individuals and of society. The new measures are based on
people's ratings of their actual experiences, instead of a judgment of their
lives as a whole.
"The belief that high income is associated with good mood is widespread but
mostly illusory," the researchers wrote. "People with above-average
income are relatively satisfied with their lives but are barely happier than
others in moment-to-moment experience, tend to be more tense, and do not spend
more time in particularly enjoyable activities."
The Princeton researchers collaborated with psychologists David Schkade of the
University of California-San Diego, Norbert Schwarz of the University of
Michigan and Arthur Stone of the State University of New York-Stony Brook.
The researchers have developed a tool to measure people's quality of daily life
known as the Day Reconstruction Method (DRM), which creates an "enjoyment
scale" by requiring people to record the previous day's activities in a
short diary form and describe their feelings about the experiences. Their 2004
study using this method, which surveyed 909 employed women in Texas, provided
evidence that higher income played a relatively small role in people's daily
happiness.
For the new study, the researchers examined data from the 2004 survey to
illustrate misperceptions that more money buys more happiness. Their experiment
extended previous studies in which people have exhibited a "focusing
illusion" when asked about certain factors contributing to their happiness
-- attributing a greater importance to that factor once it has been brought to
mind. For example, when people were asked to describe their general happiness
and then asked how many dates they had in the past month, their answers showed
little correlation. But when the order of the questions was reversed for another
group, the link between their love lives and general happiness became much
greater.
To test whether this illusion applied to income, Krueger, Kahneman and their
colleagues studied the responses given by the women in the 2004 DRM survey.
After they were asked to report the percentage of time they spent in a bad mood
the previous day, they were asked to predict how much time people with certain
income levels spend in a bad mood.
Survey respondents expected women who earned less than $20,000 a year to spend
32 percent more of their time in a bad mood than they expected people who earned
more than $100,000 a year to spend in a bad mood. In actuality, respondents who
earned less than $20,000 a year reported spending only 12 percent more of their
time in a bad mood than those who earned more than $100,000. So the effect of
income on mood was vastly exaggerated.
To provide further evidence on the role that income plays in people's lives, the
researchers conducted an additional DRM survey of 810 women in Ohio in May 2005.
In this survey, respondents reported their experiences from moment to moment as
well as their annual household income and overall life satisfaction. The new
survey found that income was more weakly correlated with individuals' happiness
from moment to moment than it was with their overall life satisfaction.
"If people have high income, they think they should be satisfied and
reflect that in their answers," Krueger said. "Income, however,
matters very little for moment-to-moment experience."
Finally, the researchers examined data from a nationwide Bureau of Labor
Statistics survey on how people with varying household income levels spend their
time. These data show that people with higher incomes devote relatively more of
their time to work, shopping, childcare and other "obligatory"
activities. Women surveyed by the researchers in Ohio associated those
activities with "higher tension and stress." People with higher
incomes spend less time on "passive leisure" activities such as
socializing or watching television, which the respondents viewed as more
enjoyable.
According to the government statistics, men making more than $100,000 per year
spend 19.9 percent of their time on passive leisure, compared to 34.7 percent
for men making less than $20,000. Women making more than $100,000 spend 19.6
percent of their time on passive leisure, compared with 33.5 percent of those
making less than $20,000.
"Despite the weak relationship between income and global life satisfaction
or experienced happiness, many people are highly motivated to increase their
income," the study said. "In some cases, this focusing illusion may
lead to a misallocation of time, from accepting lengthy commutes (which are
among the worst moments of the day) to sacrificing time spent socializing (which
are among the best moments of the day)."
The researchers noted that the two DRM surveys focused on women because the
method was in developmental stages and they wanted to study a homogeneous group.
They are in the process of collecting data on men as well as women for a
national sample to use in further studies.
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The recent study was supported by Princeton's Woodrow Wilson School of Public
and International Affairs as well as the William and Flora Hewlett Foundation
and the National Institute on Aging.
Contact: Chad Boutin
Princeton University
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