Historically, economists have said that well-being is a simple function of income. However, it has been found that once wealth reaches a subsistence level, its effectiveness as a generator of well-being is greatly diminished. This paradox has been referred to as the Easterlin paradox. Happiness economists hope to change the way governments view well-being and how to most effectively govern and allocate resources given this paradox.
In 2010, Daniel Kahneman and Angus Deaton found that higher earners generally reported better life satisfaction, but people’s day-to-day emotional well-being only rose with earnings until a threshold annual income of $75,000.
Gregg Easterbrook claims that even though wealth, or economic surplus, is more common today than in 1950, people are still as happy as they were 60 years ago. In polls taken by the National Opinion Research Center, about 1/3 Americans said they were really happy in 1950, since then the polls have been taken periodically, and the results have stayed about the same since then.
Other factors have been suggested as making people happier than money. A short term course of psychological therapy is 32 times more cost effective at increasing happiness than simply increasing income.
Scholars at the University of Virginia, University of British Columbia and Harvard University released a study in 2011 after examining numerous academic paper in response to an apparent contradiction: “When asked to take stock of their lives, people with more money report being a good deal more satisfied. But when asked how happy they are at the moment, people with more money are barely different than those with less.”
Published in the Journal of Consumer Psychology, the study is entitled
“If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending It Right”:
Spend money on “experiences” rather than goods.
Donate money to others, including charities, rather than spending it solely on oneself.
Spend small amounts of money on many small, temporary pleasures rather than less often on larger ones.
Don’t spend money on “extended warranties and other forms of overpriced insurance.”
Adjust one’s mindset to “pay now, consume later,” instead of “consume now, pay later.”
Exercise circumspection about the day-to-day consequences of a purchase beforehand.
Rather than buying products that provide the “best deal,” make purchases based on what will facilitate well-being.
Seek out the opinions of other people who have prior experience of a product before purchasing it.