DOES MONEY MAKE US HAPPY?
by Robert Levine

A few years ago my wife and I decided to sell our house. We hadn’t the faintest idea how much to ask, so I called a realtor friend. The friend said two comparable houses in our neighborhood had recently sold. One around the corner had gone for a hundred and seventy-five thousand, but it stayed on the market for almost a year. The other house went for a hundred and thirty thousand, just hours after being listed. We had our range. Now we had to decide on a figure. Should we offer the house at $130,000? At $150,000? $180,000? For the first time in each of our lives, we started thinking in multiples of tens of thousands of dollars. One moment we were preparing to ask another twenty or thirty and anticipating a lower offer, the next moment we’d decided to bring our asking price down ten but to hold firm. The numbers were dazzling. We settled on an asking price of one forty-nine, practically on a coin flip.
The first offer came in low, at a hundred and ten. We not only rejected it, but felt insulted. After all, we knew the absolute rock bottom value of our house was twenty thousand dollars higher. Mind you, three days earlier our realtor might have told us our house was worth fifty percent more or less and I’m sure we’d have just as easily accepted that range.
Other offers trickled in--none at our asking price, but all above the lower limit. When considering these offers, we now found ourselves thinking in scaled down units. Usually we spoke in terms of thousands of dollars. One buyer’s offer came in ten (thousand, of course) below asking. Should we counter at five more? Or should we go up eight and expect them to come back four, and then we could counter for two more? Perhaps we should hold to our original price but offer them three in credit for new carpeting? We decided to ask for five. They came back at three less, leaving us two apart. We nodded to our agent, as we assumed the buyers were at the same moment doing with theirs, and suggested in a civilized tone to just split the difference at a thousand each. We offered this thousand as casually as if it were a stick of gum.
That night we received a visit from our realtor. The buyers had refused our compromise. They were holding firm and, their realtor had sent word, would probably call off the deal if we demanded a penny more. In tandem--surprising each other with our voracity--my wife and I barked back, “Absolutely No.” Who did these money-grubbers think they were, trying to milk us for a thousand bucks? Neither we nor the buyers budged for close to a week--they at one forty-one, we at one forty. I’m sure they had no clearer idea how they’d arrived at their last ditch figure than we did about ours. But we all were now certain exactly what this house was worth.
The stalemate was eventually broken by the realtors, both of whom volunteered to give up five hundred dollars of their fees. Later, in fact, our realtor told us these impasses were rather common. “At some point in these negotiations people seem to get a bottom line figure in their head and, once they do, there’s no getting past it,” she observed.
Looking back, what I find most remarkable about these events was how, in my mind, there was no relationship between the amount of money at stake and how important the decision felt. After the first couple of days, it didn’t matter whether the particular involved twenty thousand dollars or one thousand. I always seemed to expend the same effort and care, and our wins and losses affected me with the same intensity of pleasure, regret or (more than occasionally) anxiety. This was especially true when it was money leaving our pockets. When I felt gypped, I felt gypped, no matter for how much. Losses were losses, period.
There is something marvelous about how effortlessly and seamlessly a human mind can switch scales like this. But there is something equally ridiculous. Literally minutes after we closed our deal, I went to a supermarket to buy groceries. When I reached for a vegetable on my list (cauliflower, if you must know), I saw it was $1.99/pound, which was twice the price I recalled paying in another market the week before. Unfair! Without second thought, I indignantly put the cauliflower back and continued down the aisle to find a better value. Forget that it would be my second-choice substitute.
A part of me laughed as I watched myself enact this absurd charade--recognizing that I’d reacted with more emotion to paying an extra 99 cents for the cauliflower than I had to the ten thousand dollar decisions I was making two weeks earlier. Or than the one thousand dollars I nonchalantly held out to a couple of strangers a week ago. But silly or not, I watched myself pass up the overpriced cauliflower to save an essentially insignificant sum of money.
Wealth: Compared to What?
Our perception of wealth employs a similar mental arithmetic. The actual amount we have is less important than how much we have compared to what we expect to have.
I have a friend, Lenny, who has a habit of answering every question of judgment with the retort: “Compared to what?” It’s an extremely annoying habit. But the question has great psychological wisdom, for almost any aspect of our lives worth evaluating is a matter of relativity. Are you happy with your life? Your marriage? Your job? Your dinner? There can be no meaningful answers to these questions before establishing the great human baseline: “Compared to what?.” After all, outside of the extremes of euphoria and depression, how do we evaluate life’s ambiguities other than by comparisons?
Nowhere is Lenny’s philosophy more true than with money. H.L. Mencken defined wealth as “any income that is at least one hundred dollars more a year than the income of one's wife's sister's husband.” In the absence of absolute standards, we define wealth by contrast--compared to our peers, compared to what we had yesterday, compared to what we anticipated having today. When reality exceeds expectations, it’s a gain; when it falls short, it’s a loss. Happiness isn’t registered by absolute numbers but by the ratio of gains to losses.
But here’s the rub: Studies show that the happiness from a gain is short-lived. As soon as the gain is in hand, we reset our expectations to a new, higher level. We then need to exceed the new level to register more happiness. It’s what psychologists call the adaptation level principle.
Consider what happens, for example, when a person wins the lottery. Social psychologist Philip Brickman and his associates interviewed 22 winners of major U.S. lotteries. The winners turned out to be no happier in the long run than they were before hitting their jackpots. For most winners, there’s an initial elation, with typical comments like, “Winning the lottery was one of the best things that ever happened to me.” But this feeling usually fades after a few months and the winner returns--for better or worse--to his or her previous level of happiness. After their elation, winners discover their expectation levels become altered. They report that many activities they previously enjoyed, such as having a good meal or reading, become less pleasurable.
It’s not just lottery winners for whom happiness over receiving new wealth turns out to be temporary. In the most extensive review of research on the money-happiness connection conducted to date, Ed Diener and Robert Biswas-Diener found that people who experience increases in any type of income are usually no happier over the long run than they were before. In fact, Diener and Biswas-Diener found that economic growth on the national level is rarely accompanied by long-term rises in happiness. One study, for example, looked at happiness levels in Japan between 1958 and 1987. Despite the fact that Japan moved from being one of the poorest to one of the wealthiest nations in the world during this period, there was no noticeable change in peoples’ overall level of happiness.
This is easily explained by the contrast effect. Additional data show that we adjust our aspirations as quickly as we attain money. Surveys asking Americans what they believe is included in the “good life” found, between 1975 and 1991, an increase of 84 percent in people checking “vacation home.” Between 1987 and 1994, the income Americans said they needed to “fulfill all their dreams” shot up from $50,000 to $102,000 . In a 1995 survey of Americans earning more than $100,000 a year, 27 percent said they didn’t have enough to buy everything they needed; 19 percent said nearly all their money went to buying basic necessities. Sixty-one percent said there is always something they have in mind to buy; 27 percent say they frequently dream of things they want to buy. On average, people reported more than six items on their wish list.
“Even as we contemplate our satisfaction with a given accomplishment, the satisfaction fades, to be replaced by a new indifference and a new level of striving,” the authors of the American lottery study observe. How happy would your life feel a year after winning the lottery? Probably about as happy as you were the year before winning. All that changes is your baseline for comparison. As a sociologist observed, “Happiness is not the result of being rich, but a temporary consequence of recently becoming richer.”
New Burdens
Worse yet, new wealth can create unanticipated burdens. In another study of lottery winners–this one with winners of football pool lotteries in England–it was found that many quit their jobs and moved to new neighborhoods. As a result, they often suffered the loss of many previous friends. There were complaints of social isolation. Several encountered new frictions with family and friends who thought they should get greater shares of the winnings.
Any dramatic increase in income can lead to problems. Consider what happened during the roaring U.S. stock market a couple of years back, when many were accumulated profits beyond their wildest dreams . New millionaires were being created at an unprecedented pace. Many of them, however, learned their new wealth was far from the fairy tale they’d anticipated. Psychologists in Silicon Valley, up the road from where I live in California, encountered so many problems that they coined the term “sudden wealth syndrome.”
One typical sufferer commented: “In a lot of ways, I was happier living a simpler life,” “I’m not saying I’m a miserable guy, but it is hard talking to people about making this transition. Other people just think, ‘Shut up! You have what everyone dreams of.’ What they don’t understand is that change is always difficult, and sometimes it’s painful.” Another new millionaire--a Los Angeles entrepreneur who, after years of struggle, woke up one morning ten million dollars richer after selling his company--at first went into an exhilarating buying spree, accumulating new cars and a multimillion dollar house. But he soon started obsessing about how his wealth could evaporate as quickly as it had come. At the same time, he felt a gap with his old friends that made it awkward to talk about anything in life that involved money. “Our property tax now is double our old house payment for a year,” the executive observed. “How do you talk to other people about that?”
It’s not that the millionaires wanted to trade in their new comforts. But what they had not anticipated were the new problems that came with the wealth.
How Good Is Money?
The assumption that money is good, the more the better, is so widely shared and unquestioningly accepted that it seems to be a human instinct. From an evolutionary viewpoint, this certainly makes sense. After all, food, shelter and other basic resources are needed for survival. It’s not hard to imagine how a drive to accumulate assets would develop over the ages.
But most people reading this article have more than enough money to meet their minimal needs. In today’s “developed” society, accumulating wealth often has less to do with trying to put food on the table than deciding what new gadget or automobile or home improvement to buy. “We live in an age,” Oscar Wilde observed decades ago, “when unnecessary things are our only necessities.” For many of us, wealth isn’t about survival so much as finding pleasure and happiness.
But does money buy happiness? Hundreds of studies have focused on this age old question. The research has covered a vast range of people--different cultures, ethnic groups, occupations, personality types. In virtually every case, with remarkable consistency, the same results emerge: The lowest income groups--people without enough money for food and shelter--are least happy with their lives. It’s not good to be poor. Beyond a minimal standard of living, however, there’s no relationship between money and happiness. People with enough money to minimally get by are no less happy than those with more than enough to get by; there are no overall differences in happiness between the middle class and the upper class or between the wealthy and the super-wealthy.
And there is another conclusion from the Diener and Biswas-Diener survey worth noting: The least happy people are those who focus too much on money and possessions. People who are more concerned with love and caring relationships, on the other hand, tend to be far happier than others. These findings hold true for countries from around the world.
Finally, one last problem. Research shows that we experience more pain from a loss than we do pleasure from an equal gain. We get more upset over losing 100 dollars than we feel happy about gaining 100 dollars. This is also true for our lives in general. It’s been found, for example, that bad events have longer lasting effects on our over well-being than do good events. One telling study found that having a good day has no noticeable effect on how happy we are the following day; after a bad day, however, we tend to be less happy the next day.
In other words, the odds are stacked against being satisfied with your wealth. It doesn’t really matter much how much money you have. If you watch the numbers too carefully, you’ll probably experience more pain over what you don’t have then pleasure over what you do. As the folksinger Bob Dylan once wrote, “When you ain’t got nothing you got nothing to lose.” From the standpoint of psychology, it’s sound advice.
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Robert Levine is a Professor of Psychology at California State University, Fresno, USA. His book, A Geography of Time, was translated into Chinese under the title “......” Parts of this article are taken from his upcoming book, The Psychology of Persuasion.