"Putting a Price on Happiness"

A great article on money and happiness: “Putting a Price on Happiness”, by Dan Ackerman in Forbes.com, 9/20/04 asks “What makes people happy"?

Ackerman says that “ it turns out that a $200 item may not generate more happiness than a $20 item, an $80,000 annual income may not cause much more happiness than a $50,000 income, and a Mercedes may not confer much more happiness than a Ford or a Chevy.”

According to researchers, there are "data sets on about 1 million randomly sampled people...from 20 or 30 countries" who are asked to rate their level of contentment on a scale of one to ten, according to Andrew Oswald, an economics professor at the University of Warwick in England.

This simple tool yields accurate results, says Daniel Gilbert, a psychology professor at Harvard. If you ask people whether they are happy right now, "they can tell you," Gilbert says. There are errors, but the errors are random and even out. Overall, answers jibe with neurological tests, facial expressions and other results. But when you ask people how happy they were in the past, or ask them to predict their future happiness, "you get all sorts of crazy answers," Gilbert says.

Money makes people happier too, at least at an individual level. On the other hand, among reasonably prosperous societies there does not seem to be any strong correlation between the overall level of happiness and the level of wealth.

"The effects of money on happiness in general are not large," says Ed Diener, a psychology professor at the University of Illinois and a leader in the science of measuring happiness. "The effects of living in a wealthy nation are stronger--people in wealthy nations show higher levels of [self-reported well-being], and this is true for all levels of wealth within nations," he adds.

According to Ackerman, “This insight has led Diener, among others, to advocate the creation of a "national well-being index." This measurement, which would gauge items like "engagement, purpose and meaning, [and] optimism and trust," would allow policymakers to know how happy people are, and perhaps what might be done to increase their well-being a notch or two.”