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Wednesday, March 07, 2007

Money CAN (repeat CAN) make you more happy (Part II)

Last week I pointed out that there is every reason to expect that those with greater incomes are more satisfied, ceteris paribus. Greater incomes increase the consumption possibilities set, at a given set of prices, and allow individuals to consume different combinations of goods and services that yield greater (consumption) utility.

That said, it is possible that a person with a higher income might register dis-satisfaction if they suffer a sufficiently high disutility from work. However, if this is the case, the economist would recommend working less, taking home less income, being able to afford fewer consumption goods, but not having the disutility of work. In the end, your satisfaction might actually increase. However, this is a idiosyncratic result, not a general theoretical result.

Economists get in trouble for talking about income constraints, consumption possibility sets, and so forth. Yet, a solid understanding of preference, utility maximization, and how prices and incomes alter the behavior of homo economicus can make a lot of issues much more clear.

All that said, last month Gallup released a poll that offers some support to what I said here and there:
PRINCETON, NJ -- Gallup's annual Lifestyle poll finds Americans continuing to cite high levels of personal satisfaction and happiness, even amongst widespread dissatisfaction with national conditions. While money may not buy happiness, those with greater household incomes are more likely to report higher levels of personal satisfaction and happiness than those with less income. Being married is also strongly related to life satisfaction and happiness, and may be a more important predictor of these states of mind than income.
These results do not prove that the wealthy are more happy than the poor, but it is suggestive that greater incomes are not inconsistent with being more happy. It might be the case that income is positively correlated with being married and being married, not having more income, is what is making the wealthy more happy.

That is testable with the correct data.

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