Money can't buy happiness, but it can buy life satisfaction

A vast amount of research has attempted to address the question of whether wealth (or income) and happiness (or life satisfaction) are related. Essentially, this research is tested the proposition that money can buy happiness. Some of this research has identified short-term positive effects of an unexpected increase in wealth on life satisfaction, but no such effects in the long-term. This has been referred to as hedonic adaptation - people's expectations adjust to their new circumstances. So, when your income (or wealth) increases suddenly, initially you feel a lot better off, but then you adapt to your new higher income (or wealth) and your life satisfaction returns to a more 'normal' state for you.

However, a recent NBER Working Paper by Erik Lindqvist (Stockholm School of Economics), Robert Östling (Stockholm University), and David Cesarini (New York University) calls this hedonic adaptation theory into question. They used data on over 3300 lottery winners in Sweden to investigate the effects of their lottery win (and the size of their win) on various measures of happiness and life satisfaction over a period of up to 22 years. This study is of special interest because they used a pre-registered analysis plan. This effectively neutralises any accusations that the results arise from p-hacking (for more on p-hacking and related statistical cheating, read this excellent article by Simmons, Nelson, and Simonsohn).

Lindqvist et al. found that:

...lottery wealth causes sustained increases in Overall LS [life satisfaction]. Since we did not survey any players within five years of the lottery, our research design is not suitable for studying short-run adaptation, but our results do reject the strong hypothesis of complete adaptation... Our follow-up analyses suggest that the most important mechanism explaining the increase in Overall LS is increased satisfaction with personal finances. A sustained increase in Financial LS is not easy to reconcile with a common folk wisdom that lottery winners squander their wealth through wreckless [sic] spending.

So, the increase in wealth as a result of an unexpected lottery win was associated with a persistent increase in life satisfaction. Hedonic adaptation didn't occur. However, the lottery win didn't increase 'happiness' or an index of mental health. This is likely because happiness and mental health respond to more immediate concerns and mood (they are 'affective' measures, compared with life satisfaction, which is an 'evaluative' measure).

So, it appears that money can't buy happiness, but it can buy life satisfaction.

[HT: Marginal Revolution, in June last year]