We have a burning desire for higher income because we over-predict its impact on our happiness. That’s because when we are asked to consider the impact of one thing (ie money) on our happiness, we tend to overstate its importance. That’s known as the focusing illusion. We also overestimate because changes (note that word) in income elicit a strong emotional response. But the long term effects on happiness are very small.
Today’s practical insights from the science of happiness are from “Would You Be Happier If You Were Richer? A Focusing Illusion” by Kahneman, Krueger, Schkade, Schwarz, and Stone. Read the full article here.
Why is it that over the last four decades GDP per capita has increased across the world, yet happiness and wellbeing has remained largely unchanged? The Japanese, for instance, have seen a 5x multiple in household income. But there was no effect on happiness. The answer may lie in the focusing illusion…
The focusing illusion occurs when we’re asked to assess the impact of one specific thing on our wellbeing. When we’re focused on it, we tend to exaggerate its importance. Here’s an experimental example from Strack, Martin, and Schwarz. When college students where asked about their happiness levels and about how many dates they’ve gone on in the last month, there was essentially no correlation. When the questions were reversed however, (1) dating prospects (2) happiness level, there was a 0.66 correlation.
When we call attention to a certain area (in this case dating) we tend to construct our life assessments around that variable. The same often occurs with money. We don’t know our happiness level like we do our height and weight. So when we’re prompted to give an answer we tend to base it off of whatever aspects of life are top of mind. We often consider material conditions and income as a useful benchmark.
Further evidence of the focusing illusion at work with money and happiness comes from the fact that across various studies, experienced happiness (ie affective state) is far less correlated with money than life satisfaction is. For instance, if we measure happiness via momentary emotional state averaged over the course of the day or as the summary of mood from a previous day it will show a significantly lower correlation with income that will global life satisfaction.
In other words – income doesn’t really change how we feel. It doesn’t make us much happier day to day. It just serves as a metric or heuristic when we try to rate our lives on a scale. In a culture so focused on earning, it’s no wonder that this variable is so overstated in our picture of happiness.
The truth is “subjective wellbeing is connected to how people spend their time.” And “as income rises, people’s time use does not appear to shift toward activities that are associated with improved affect [mood].” The critical risk here is misallocating time. If we accept things that rob happiness (like long commutes) and sacrifice things that bring happiness (time to socialize) in order to earn more money, we end up yet another victim of the focusing illusion.
See
Would You Be Happier If You Were Richer? A Focusing Illusion
Daniel Kahneman, Princeton University
Alan B. Krueger, Princeton University and NBER
David Schkade, University of California, San Diego
Norbert Schwarz, University of Michigan
Arthur A. Stone, Stony Brook University
CEPS Working Paper No. 125
May 2006