Money can buy you happiness but only relative to your peer's income
November 2006

Research from sociological scientists of the Pennsylvania State University, focused on whether the income effect on happiness results largely from the things money can buy (absolute income effect) or from comparing one's income to the income of others (relative income effect).

A key finding is that, in evaluating their own incomes, individuals compare themselves to their peers of the same age. Therefore a person's reported level of happiness depends on how his or her income compares to others in the same age group.

Using comparison groups on the basis of age, the researchers found evidence of both relative and absolute effects, but relative income is more important than absolute income in determining the happiness of individuals. This may result in a self-indulgent treadmill, because incomes usually rise over most of the adult lifespan. These findings were of course documented in the United States. However they may be valid in other countries as well, although relevant research is necessary to confirm this assumption.

If income effects are entirely relative, then continued income growth in rich countries today is irrelevant to how happy people are on the whole. Rather than promoting overall happiness, continued income growth could promote an ongoing consumption race where individuals consume more and more just to maintain a constant level of happiness.

The researchers tested what they referred to as the hedonic treadmill hypothesis, which uses a comparison of age-based cohorts. The hedonic treadmill requires a specific type of relative income effect--one where keeping up with the level of friends or neighbors, means continually increasing one's own income, because we can be sure that friends or neighbors are increasing theirs.

The Pennsylvania State University scientists measured the age, total family income, and general happiness of 20 to 64 year-olds using analysis from the 1972-2002 General Social Survey. They controlled for health, education, effects of getting older, race, and marital status. Happiness was measured using a self-report response of "very happy," "pretty happy," or "not too happy."

While income is important in determining happiness, data collected showed that physical health was the best single predictor of happiness, followed by income, education, and marital status. The researchers found a relative income effect--the richer you are relative to your age peers, the happier you will tend to be.

Happy people are healthier

In addition to the the previous interesting evidence, psychologists from Carnegie Mellon University showed or rather confirmed previous research that happiness and other positive emotions play an even more important role in health than previously thought.

Their recent study confirmed the results of a landmark 2004 paper in which they found that people who are happy, lively, calm or exhibit other positive emotions are less likely to become ill when they are exposed to a cold virus than those who report few of these emotions. In that study, they showed that when they do come down with a cold, happy people report fewer symptoms than would be expected from objective measures of their illness.

In contrast, reporting more negative emotions such as depression, anxiety and anger was not associated with catching colds. That study, however, left open the possibility that the greater resistance to infectious illness among happier people may not have been due to happiness, but rather to other characteristics that are often associated with reporting positive emotions such as optimism, extraversion, feelings of purpose in life and self-esteem.

The recent study controls for those variables, with the same result: The people who report positive emotions are less likely to catch colds and also less likely to report symptoms when they do get sick. This held true regardless of their levels of optimism, extraversion, purpose and self-esteem, and of their age, race, gender, education, body mass or prestudy immunity to the virus.

We definitely need to take more seriously the possibility that positive emotional style is a major player in disease risk. And emotional style can be significantly influenced by income, especially when it compares favorably to the incomes of others in the same age group.


Bibliography:

1. American Sociological Association
2. Psychosomatic Medicine
3. Carnegie Mellon University
4. Pennsylvania State University