Money briefly buys happiness but at who’s expense?

The Economist reports that a recent study mimics the distribution results of economic growth, where some people gain more than others.

Those who received transfers reported greater satisfaction with their lot after the money arrived. Cortisol levels and the incidence of depression fell too.

However, the satisfaction of those who did not receive anything fell sharply as their neighbours’ fortunes improved. The decline in satisfaction prompted by seeing one’s peers get $100 richer was bigger than the increase of satisfaction from getting a handout of the same size. The bigger the handouts to others in their village, the greater the dissatisfaction of non-recipients. (The handouts did not seem to have any impact cortisol levels or the prevalence of depression among non-recipients.)

Both the bitterness and the joy that the windfalls produced were passing. The effects of changes in people’s circumstances wear off as they get used to them—a phenomenon economists call “hedonic adaptation”. The large swings in satisfaction were found in the middle of the transfer scheme. Within about six months, all the transfers had been made (if they had been spread over a longer period, as usually happens when a country develops, the outcome may have been different). A year later the happiness of both the recipients and those who did without had returned close to its initial level.

Moreover, it was not inequality in general that bothered the unlucky, so much as a decline in their own wealth relative to the mean. Participants in the experiment shrugged off changes in the Gini coefficient of their village, which measures overall inequality. Take the example of a village in which one person gets richer, and another gets poorer. The village is less equal, but the mean income is unchanged. In the Kenyan experiment this did not matter to the rest of the village. Instead, participants compared how well everyone else was doing (the village mean) to themselves.


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