Thursday, October 12, 2006

Link between money and happiness greatly exaggerated and mostly an illusion

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, that was published in a recent 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.

Jonathan Clements in The Wall Street Journal says that academic studies suggest that simply amassing more stuff won't bring a permanent increase in your happiness and he came up with nine tips that may help:

  • 1 Make time for friends: According to a 2006 report by the Pew Research Center in Washington, 43% of married people say they are "very happy," versus 24% for those who aren't.

    "Married people spend less time alone," notes David Schkade, a management professor at the University of California at San Diego. "There are parts of your brain that are stimulated by the presence of other people. You're more active and energetic and engaged."

    For the same reason, seeing good friends on a regular basis can also bolster happiness.

    "The data is coming in thick and fast on the value of friendships," says Andrew Oswald, an economics professor at Warwick University in England.

    "The data suggest that making your friends a priority will have more bang for your buck than making your next promotion a priority," he notes.

  • 2 Forget the pay raise: While regularly hitting the town with friends will likely increase your happiness, you probably won't get the same boost from spending hours at the mall.

    True, you are initially thrilled when you buy that new dress or that flat-screen television. But the thrill quickly fades and you start hankering after something else.

    The same thing happens when you get a pay raise. Soon enough, you are taking the extra money for granted and you're feeling dissatisfied again. Experts refer to this as "hedonic adaptation" or the "hedonic treadmill."

  • 3 Don't trade up: Research indicates that, once folks achieve a fairly basic standard of living, it takes a lot of additional money to bring about even a small increase in reported happiness.

    Yet your income and wealth could still loom large -- if you start comparing yourself with those around you. For instance, if you moved to a neighborhood you can barely afford, you would likely be disgruntled.

    The reason: You will be surrounded by wealthy families, and that will be a constant reminder of your relative financial standing.

    "If you can look out your window and see neighbors with lower incomes, you'll be happier," Prof. Oswald says. "People are very keen to move into the elite neighborhoods. They don't realize that they won't be as happy as they expect. That's the curse of being human."

  • 4 Keep your commute short: Moving into a ritzy neighborhood would be even more harmful to your happiness if it means a longer commute.

    It turns out that commuting is one of life's least pleasurable activities. While we're usually pretty good at adapting to hardships, it's hard to adjust to commuting because it is so unpredictable. One day, you will breeze into work. The next day, you will sit steaming in traffic for 45 minutes.

    To make matters worse, a longer commute means less time for leisure. And the research says we enjoy leisure more than work.

  • 5 Count your blessings: Your pleasure from your new house and your latest pay raise may subside. But you may be able to revive some of the good feelings by taking a few minutes to count your blessings.

    Remember how wealthy neighbors can make you feel poor? What matters is what you focus on. Instead of obsessing over your neighbors' riches, try focusing on the riches you have -- and that will likely make you feel happier.

  • 6 Enjoy a good meal: In surveys, eating ranks as one of our favorite pastimes.

    "It's a relatively pleasant activity and it satisfies a basic need," Prof. Schkade notes. "But if you aren't focused on it, you won't enjoy it as much. This is why the French enjoy their food more. They are less likely to eat alone and they are less likely to be doing something else at the same time."

  • 7 Challenge yourself: Leisure is more pleasurable than work. But you should also think about how you spend your leisure time.

    After a long day at the office, you might be inclined to stagger home and collapse in front of your new flat-screen television. But in fact, the research suggests you'll be happier if you are more active.

    Suppose you start a new exercise program. The key: Set goals that are challenging yet achievable, because you will enjoy the sense of progress.

    Also look to change your exercise program occasionally, so the pleasure you receive doesn't start to fade.

    As an added bonus, regular exercise will leave you healthier, and that should further increase your happiness. According to the Pew Research Center report, a mere 6% of those who describe their health as excellent also say they are "not too happy." By contrast, among those who say their health is poor, 55% report that they are "not too happy."

  • 8 Volunteer: If you want to help yourself, try helping others -- by engaging in charitable activities.

    "Not only does it make you feel valuable, but also you see other people doing good deeds, and that makes you feel better," Prof. Schkade says. "It makes you realize the world can be a good place."

  • 9 Give it time: Surveys have found that reported happiness tends to be U-shaped through life, with folks becoming increasingly grumpy as they approach their 40s and then recovering from there.

    Maybe our happiness gradually declines as we fail to fulfill our youthful ambitions, only to revive once we accept our lot in life. Alternatively, maybe this midlife unhappiness reflects the time pressures faced by those in their 40s, as they juggle work and family.

    But whatever the reason, you are likely to grow happier as you grow older. Not sure any of the first eight tips will do the trick? Maybe you just need to give it time.