Behavioral Finance’s Kahneman: Happiness costs $75,000

The price of happiness has gone up.

In a February speech at the TED Conference, Nobel Prize winner Daniel Kahneman said that it looked liked $60,000 was the figure. Below that you were not happy. Above it, you were satisfied. Satisfaction didn’t climb much as you went up the income ladder from there.

But in a piece in this week’s Proceedings of the National Academy of Sciences, Kahneman has co-authored an article with fellow Princeton professor Angus Deaton that puts the magic number for an American at $75,000.

Kahneman explains the difference to Portfolioist: “…the data are the same, the analysis is better. The essential
conclusion is the same, of course. There is complete flattening at the
top and a question of how to estimate where it happens.” In other words, no true climb in personal happiness triggers. The study drew from more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 US residents.

(The emphasis below is mine.)

Recent research has begun to distinguish two aspects of subjective well-being. Emotional well-being refers to the emotional quality of an individual’s everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant. Life evaluation refers to the thoughts that people have about their life when they think about it. We raise the question of whether money buys happiness, separately for these two aspects of well-being…

…Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions. When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of $75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.

People with higher incomes do have more satisfaction, but they don’t have more joy or laughter, nor do they have less anger, stress or worry.

In a writeup of the study, Inc. Contributing Editor Courtney Rubin notes that ” about one-third of U.S. households had incomes above $75,000, according to the U.S. Census Bureau‘s American Community Survey. The average household income was $71,500.”

Just shy of the magic mark.

2 thoughts on “Behavioral Finance’s Kahneman: Happiness costs $75,000

  1. cm

    The Census Bureau reports the *median* U.S. household income now at $49,909. Median is probably a better number to use rather than average, since the super rich skew things.

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