Sunday, May 05, 2013

Money buys happiness, at the margin

Subjective Well-Being and Income: Is There Any Evidence of Satiation? 

Betsey Stevenson & Justin Wolfers 
NBER Working Paper, April 2013 

Abstract: Many scholars have argued that once "basic needs" have been met, higher income is no longer associated with higher in subjective well-being. We assess the validity of this claim in comparisons of both rich and poor countries, and also of rich and poor people within a country. Analyzing multiple datasets, multiple definitions of "basic needs" and multiple questions about well-being, we find no support for this claim. The relationship between well-being and income is roughly linear-log and does not diminish as incomes rise. If there is a satiation point, we are yet to reach it.

Nod to Kevin Lewis


JD Cross said...

Except that the analysis in this paper is crap. (Which doesn't necessarily mean that the result is wrong, just that this paper isn't evidence of the result being correct.)

One gets an immediate sense that something is amiss if you jump to Figure 2. The left y-axis is "standardized". So this must mean that the actual values mean something "real". If so, then it means something to the effect of: the richest person (noted on the graph) in China is lower in "satisfaction level" than the poorest person in Great Britain or the US.

When I saw that, it piqued my curiosity. Odd results are often the hallmark of really good research (or bad research).

But then you go back to Figure 1. Why in the world do they arbitrarily break the fit at $15,000? There is no reason for this. If they're going to break the fit at $15,000 they should also, I would argue, break the curve around $32,000 and then fit a new curve which would have a negative slope (and be more negative than either of the two positive slopes, thereby suggesting that the wealthiest get very unhappy the more money they have). And for that matter, why not just keep breaking the data set into smaller and smaller subsets until we can "show" whatever we want to show.

I blogged about this here:

This seems like utter nonsense to me. Happy to hear how I'm wrong.

-JD Cross

Thomas Watson said...

Money is only meaningful when you spend it on meaningful things.