Economists have generally found that rich people are happier. People who are wealthy are likely to be happier than those who have trouble affording food, clothes, or shelter. What is driving this happiness differential? Is the additional happiness from additional wealth due to the fact that you can more easily fulfill basic needs, or is it because people with fancier cars and more iPhones are actually happier?
A paper by Di Tella and MacCulloch (2008) examines what happens to individuals in developed countries when they become wealthier. They find that increased wealth does increase happiness, but only temporarily.
“We find evidence that for wealthy Germans, and for the rich half of European nations, higher levels of per capita income don’t buy greater happiness. The reason appears to be adaptation. However even for the rich half of European nations such habituation may take over 5 years so the happiness gains that they experience, whilst not permanent, can still be relatively long-lasting. Finally we study a cross section of nations in 2005 from the World Gallup Poll and find that the past 45 years of economic growth (from 1960-2005) in the rich half of nations has not brought happiness gains above those that were already in place once the 1960s standard of living had been achieved. However in the poorest half of nations we cannot reject the null hypothesis that the happiness gains they have experienced from the past 45 years of growth have been the same as the gains that they experienced from growth prior to the 1960s. ”
As Thomas Jefferson once said: “It is neither wealth nor splendor, but tranquillity and occupation, which give happiness.”
- Rafael Di Tella, Robert MacCulloch (2008) “Happiness Adaptation to Income beyond ‘Basic Needs,'” NBER Working Paper No. 14539.