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Click Here To Read: Money and Happiness: Rank of Income, Not Income, Affects Life Satisfaction

Abstract (Via APS)

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.

Introduction (Via APS)

Is there a true causal relation between money and happiness? According to conventional economics, there is: Money can buy happiness because it can be exchanged for goods that will increase an individual’s utility. Thus, money and happiness are assumed to be causally linked, and higher incomes should lead to greater happiness. In line with this absolute-income hypothesis, richer people are happier than those less well off within the same society (Diener, 1984). The correlation between money and happiness is often small, but effect sizes are larger in low-income developing economies (Howell & Howell, 2008), and even small correlations can reflect substantial real differences in happiness (Lucas & Schimmack, 2009). Such results, however, do not necessarily reflect a simple causal relation between money and happiness. The idea that absolute income leads to increased happiness is unable to account for the Easterlin (1974) paradox—that income and happiness are positively associated within a country at a given time but not (or less well) correlated within a country over time.

Furthermore, being among people richer than oneself can be detrimental to well-being, as measured in various ways (Blanchflower & Oswald, 2004; Clark, Frijters, & Shields, 2008; Clark & Oswald, 1996; Ferrer-i-Carbonell, 2005; Luttmer, 2005), consistent with income comparison. Self-rated happiness and satisfaction scores have been shown to act as valid and reliable proxies for utility (e.g., Lepper, 1998; Sandvik, Diener, & Seidlitz, 1993). The data have therefore been taken to suggest that an individual’s utility is influenced not by absolute level of income, but instead by income relative to that of peers.

Click Here To Read: Money and Happiness: Rank of Income, Not Income, Affects Life Satisfaction

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