In Pursuit of Happiness: an Economist’s Point of View on Money and Happiness

Aug 13, 2021

Dr. Amos Nadler, Ph.D. Chief Economist at Fabriik

Most people think of psychology as the field for studying happiness, but you might be surprised to know that economists are also pretty interested in this topic, but approach it very differently. Instead of how we perceive happiness, economists look at what drives happiness and ultimately we come up with different results and produce usable insights. For example, you probably think having more money is better, right? Sure, people prefer to be rich than poor, but like most things, it’s not that simple: our “utility” of money doesn’t increase in a straight line the wealthier we get. Utility is how valuable our money is.

For example, you might feel like you have hit it big time when you go from having $1 to $1,000 but that baller feeling drops dramatically when you go from $1,000,000 to $2,000,000. It’s where it shoots up big time at very low levels and hardly budges at baller status, which makes it much more interesting (we call it a “non-linear function”). There’s fascinating research showing how much we need to be happy (spoiler alert: the findings aren’t necessarily the most obvious – more on this topic next week).

Equality, fairness and morality

Economists, just like you, wonder how we can spend our money to bring us as much joy as possible and find themselves recommending specific ways for squeezing more out of a buck. Not only do we look at absolute wealth, but we find that we care a great deal about how much we have relative to others. A US$100K income might make someone happy in a middle-class neighborhood but might induce depression if their zip code is 90210.

Economists created experimental games for measuring whether we care about things like equality, fairness, and morality where people divide money between themselves and another person. The results are that people care a great deal about equality, so much so that they almost universally make economic decisions that hurt themselves in favor of another person, to create equality. So much for people being inherently selfish, huh?

This is just a taste of the topics coming your way and I’m looking forward to sharing with you actionable insights in future editions. As always feel free to reach out on Twitter.

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