High Income Improves Life Evaluation, Not Emotional Wellbeing (2010) PDF

High income improves evaluation of life but not emotional well-being Daniel Kahneman1 and Angus Deaton...

High income improves evaluation of life but not emotional well-being Daniel Kahneman1 and Angus Deaton Center for Health and Well-being, Princeton University, Princeton, NJ 08544 Contributed by Daniel Kahneman, August 4, 2010 (sent for review July 4, 2010) Recent research has begun to distinguish two aspects of subjective best possible life for you.” We find that emotional well-being and well-being. Emotional well-being refers to the emotional quality of an life evaluation have different correlates in the circumstances of individual’s everyday experience—the frequency and intensity of ex- people’s lives. In particular, we observe striking differences in the periences of joy, stress, sadness, anger, and affection that make one’s relationship of these aspects of well-being to income. (For related life pleasant or unpleasant. Life evaluation refers to the thoughts that observations in the Gallup World Poll, see ref. 9.) people have about their life when they think about it. We raise the Confusion abounds in discussions of our question. For an ex- question of whether money buys happiness, separately for these two ample, consider the statement that “a lasting marriage...is esti- aspects of well-being. We report an analysis of more than 450,000 re- mated to be worth $100,000 a year” (10). This correct statement of sponses to the Gallup-Healthways Well-Being Index, a daily survey of a research finding is likely to be misunderstood, because many 1,000 US residents conducted by the Gallup Organization. We find readers will interpret it by imagining the pleasure of a change of that emotional well-being (measured by questions about emotional this magnitude in their income. The pleasure of a raise is likely to experiences yesterday) and life evaluation (measured by Cantril’s Self- be transient, however, due to a phenomenon known as adapta- Anchoring Scale) have different correlates. Income and education are tion. Because of adaptation, the difference in well-being between more closely related to life evaluation, but health, care giving, loneli- two random individuals whose income differs by $100,000 is far ness, and smoking are relatively stronger predictors of daily emotions. less impressive than the joy and misery that these individuals When plotted against log income, life evaluation rises steadily. Emo- would immediately experience were they to trade places. Because tional well-being also rises with log income, but there is no further the observed effects of long-established income differences are progress beyond an annual income of ∼$75,000. Low income exacer- much smaller than intuitively expected, they are sometimes de- bates the emotional pain associated with such misfortunes as divorce, scribed as inconsequential, but this too is misleading. When en- ill health, and being alone. We conclude that high income buys life sat- tered in multiple regression model to predict well-being along isfaction but not happiness, and that low income is associated both with other aspects of life circumstances (marital status, age, ed- with low life evaluation and low emotional well-being. ucation), the effects of household income are almost invariably both statistically significant and quantitatively important. We re- life evaluation | emotional experience | household income | satiation | port that household income matters for both emotional well-being happiness and life evaluation, and that there are circumstances under which it matters for the latter when it does not matter for the former. he question of whether “money buys happiness” comes up fre- T quently in discussions of subjective well-being in both scholarly debates and casual conversation. The topic has been addressed in Some of the confusion regarding the effects of income on well- being can be traced to incorrect analysis. Psychologists and soci- ologists often plot measures of subjective well-being against income a vast and inconclusive research literature (for a selection of recent in dollars, but a strong argument can be made for the logarithm of reviews, see refs. 1–4). No single article can settle this complex ques- income as the preferred scale. The logarithmic transformation re- tion definitively, but data recently collected by the Gallup Organi- presents a basic fact of perception known as Weber’s Law, which zation in the Gallup-Healthways Well-Being Index (GHWBI) pro- applies generally to quantitative dimensions of perception and vide a rich source of observations, as well as an unusually detailed judgment (e.g., the intensity of sounds and lights). The rule is that measurement of well-being. We analyze the responses of more than the effective stimulus for the detection and evaluation of changes or 450,000 US residents surveyed in 2008 and 2009 to several questions differences in such dimensions is the percentage change, not its ab- about their subjective well-being. The results suggest a rather com- solute amount. In the context of income, a $100 raise does not have plex answer to our opening question. the same significance for a financial services executive as for an in- A discussion of subjective well-being must recognize a dis- dividual earning the minimum wage, but a doubling of their re- tinction between two concepts that are often confounded (5–8). spective incomes might have a similar impact on both. The loga- Emotional well-being (sometimes called hedonic well-being or rithmic transformation reveals an important regularity of judgment experienced happiness) refers to the emotional quality of an that risks being masked when a dollar scale is used. individual’s everyday experience—the frequency and intensity of Plots of subjective well-being against income in dollars in- experiences of joy, fascination, anxiety, sadness, anger, and af- variably yield a strongly concave function. Although concavity is fection that make one’s life pleasant or unpleasant. Life evalu- entailed by the psychophysics of quantitative dimensions, it often ation refers to a person’s thoughts about his or her life. Surveys has been cited as evidence that people derive little or no psy- of subjective well-being have traditionally emphasized life eval- chological benefit from income beyond some threshold. Al- uation. The most commonly asked question in these surveys is though this conclusion has been widely accepted in discussions of the life satisfaction question: “How satisfied are you with your the relationship between life evaluation and gross domestic pro- Downloaded at University of California Digital Library on February 4, 2020 life as a whole these days?” The GHWBI survey is unusual in its duct (GDP) across nations (11–14), it is false, at least for this attempt to distinguish and capture both aspects of subjective PSYCHOLOGICAL AND COGNITIVE SCIENCES well-being. Emotional well-being is assessed by questions about the presence of various emotions in the experience of yesterday Author contributions: D.K. and A.D. designed research; performed research; analyzed (e.g., enjoyment, happiness, anger, sadness, stress, worry). Life data; and wrote the paper. evaluation is measured using Cantril’s Self-Anchoring Scale, The authors declare no conflict of interest. which has the respondent rate his or her current life on a ladder Freely available online through the PNAS open access option. scale in which 0 is “the worst possible life for you” and 10 is “the 1 To whom correspondence should be addressed. E-mail: [email protected]. www.pnas.org/cgi/doi/10.1073/pnas.1011492107 PNAS | September 21, 2010 | vol. 107 | no. 38 | 16489–16493  aspect of subjective well-being. In accordance with Weber’s Law, population ranks high on the ladder (ninth after the Scandinavian average national life evaluation is linear when appropriately plotted countries, Canada, The Netherlands, Switzerland, and New Zea- against log GDP (15); a doubling of income provides similar incre- land), and also does well in terms of happiness (fifth), smiling ments of life evaluation for countries rich and poor. As this example (33rd), and enjoyment (10th), but much less well on worry (89th illustrates, the statement that “money does not buy happiness” may from best), sadness (69th from best), and anger (75th). Americans be inferred from a careless reading of a plot of life evaluation against report very high levels of stress (fifth among 151 countries). raw income—an error avoided by using the logarithm of income. In Table 1 presents regressions of the four well-being measures on the present study, we confirm the contribution of higher income to a set of demographic variables, which provide context for inter- improving individuals’ life evaluation, even among those who are preting these measures. All of the predictors are dichotomous. already well off. However, we also find that the effects of income on The first row of the table shows the regression coefficient for an the emotional dimension of well-being satiate fully at an annual indicator of high income, defined as reporting a monthly income income of ∼$75,000, a result that is, of course, independent of of at least $4,000, which corresponds to the top 58% of the pop- whether dollars or log dollars are used as a measure of income. The aims of our analysis of the GHWBI were to examine pos- ulation. These coefficients cannot be compared across the row, sible differences between the correlates of emotional well-being because the outcomes have different scales. The entries in other and of life evaluation, focusing in particular on the relationship rows are ratios normalized by the coefficient on the high-income between these measures and household income. indicator, thus representing the estimated effect relative to the effect of increasing income by approximately 4-fold. The sign of Results each ratio is positive if its regression coefficient has the same sign Some observations were deleted to eliminate likely errors in the as the coefficient for income (positive for positive affect, negative reports of income. The GHWBI asks individuals to report their for blue affect, etc.). A coefficient >1 indicates an effect larger monthly family income in 11 categories. The three lowest cate- gories—0, $120,000). Positive affect, blue affect, and Cantril ladder score Fraction of population experiencing Posive affect are all significantly improved in the first comparison with the ex-.8 7 ception of stress, which appears to satiate at a lower income level, roughly $60,000. In comparisons of the top two categories, only Mean ladder the ladder score shows a significant improvement with higher Not blue income. The small t values are remarkable in these very large.7 6.5 samples. We conclude that lack of money brings both emotional Ladder misery and low life evaluation; similar results were found for anger. Beyond ∼$75,000 in the contemporary United States, how-.6 ever, higher income is neither the road to experienced happiness 6 Stress free nor the road to the relief of unhappiness or stress, although higher income continues to improve individuals’ life evaluations..5 Below $75,000, many factors become gradually worse, at least on 5.5 average. For example, the emotional pain associated with ill health 10,000 20,000 40,000 80,000 160,000 depends on income; for those reporting a monthly income of at Annual income least $3,000 (about two-thirds of households), the fractions re- Downloaded at University of California Digital Library on February 4, 2020 porting blue affect with and without headaches are 38% and 19%, Fig. 1. Positive affect, blue affect, stress, and life evaluation in relation to respectively, a difference of 19 percentage points. The correspond- PSYCHOLOGICAL AND COGNITIVE SCIENCES household income. Positive affect is the average of the fractions of the ing values for those with a monthly income of