By Atanu Biswas
Dan Price is a modern equivalent of Robin Hood. He is the founder and CEO of Gravity Payments, a credit card processing company based in Seattle. Price conducted an unprecedented corporate experiment in 2015 by setting a $70,000 minimum wage for all 120 employees at his company and slashing his own salary from $1.1 million to $70,000 in order to pay for it. This nearly doubled the company’s starting salary. In Price’s 2020 book Worth It, the backdrop, the initial struggles, and the immediate results of this unusual corporate experiment were chronicled.
Yet, why $70,000? A 2010 paper by Nobel Prize-winning economist and psychologist Daniel Kahneman and Angus Deaton—who would later win the 2015 Nobel Prize in Economics—inspired Price in part. This influential study, based on data from a daily Gallup survey of 1,000 Americans from 2008 to 2009, advanced the idea that happiness increased steadily with income up to a certain income but that there was a monetary “happiness plateau” beyond an annual income of $75,000. They found that, until people earned between $60,000 and $90,000, emotional well-being generally increased, then it flattened off. However, $75,000 today would buy roughly $100,000, and less than 10% of Americans earn above this threshold.
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But measuring “happiness” should be a tricky task. For example, the Gross National Happiness Index is instituted as the goal of the tiny Himalayan country Bhutan in their constitution, enacted in 2008. But what is the Bhutanese people’s current level of happiness? Bhutan, it turns out, came in at number 95 on the 2019 Global Happiness Index list! Not shocking, though. Richard Easterlin, an economist, proposed in the 1970s that wealthy nations were, in fact, happier than poor nations. Wealthy nations can undoubtedly give their citizens more amenities.
But as the World Happiness Report 2023 has been released, one might wonder whether well-being is the same as happiness or not. We are frequently told that money can’t buy happiness. Told by rich people quite often though. For example, after cutting staff’s benefits last September, Google’s multimillionaire CEO, who made $6.3 million in pay the year before, told all of his staff, “We shouldn’t always equate fun with money.”
Therefore, I suppose the finding of the article by the two Nobel laureates in economics comes as little surprise. The surprising finding, though, comes from some other studies. Money can’t buy happiness—“[t]his sentiment is lovely, popular, and almost certainly wrong,” said Elizabeth Dunn of the University of British Columbia, Harvard psychologist Daniel Gilbert, and Timothy Wilson of the University of Virginia in a 2011 joint paper in the Journal of Consumer Psychology. And surprise can also be seen in a dissenting study yielding a 2021 paper by Matt Killingsworth of the University of Pennsylvania. Killingsworth demonstrated that wellbeing improves with money, and there is no sign of a plateau based on happiness rankings recorded by more than 33,000 Americans on a smartphone app. This was a glaring contrast to the findings of Kahneman and Deaton.
At about the same time, Harvard’s Jon Jachimowicz and his coauthors presented the findings of a number of experiments in a 2022 paper published in Social Psychology and Personality Science. They found that having more money yields greater control, lessens severe stress, and increases life satisfaction. Jachimowicz asserts that while wealth does not prevent problems from existing, it does make it possible to fix problems and address issues more rapidly.
How can we untangle the ambiguity then? One possibly needs an “adversarial collaboration.” To achieve this, Kahneman, Killingsworth, and Barbara Mellers of the University of Pennsylvania teamed up for a joint reanalysis of the experience sampling data and found that the flattening pattern exists but is only seen in the least happy 20% of the population. Their findings were published in the Proceedings of the National Academy of Sciences in early March. Happiness reportedly rises with household income up to $100,000, which is the current value of $75,000, and then “abruptly” levels off if you’re extremely unhappy. Undoubtedly, money can’t fix everything. The research found that complementary nonlinearities contribute to the overall linear-log relationship between happiness and income. “In the low range of incomes, unhappy people gain more from increased income than happier people do,” the researchers wrote. “In other words, the bottom of the happiness distribution rises much faster than the top in that range of incomes. The trend is reversed for higher incomes, where very happy people gain much more from increased income than unhappy people do.” And after $100,000, happiness increases at an accelerated rate for the happiest 30% of people.
Well, they agreed that they were both sorts of right, but Killingsworth was more correct than Kahneman. For the majority of individuals, happiness truly is a commodity, and having more money makes you happier. They also hypothesised that Kahneman and Deaton could have arrived at the right conclusion if they had expressed their findings in terms of unhappiness rather than happiness because a ceiling effect prevented their measures from differentiating between different levels of happiness.
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Indeed, a corporate Robin Hood was created by Kahneman and Deaton’s “less right” argument. It would be intriguing to observe if and how the reconsideration by Killingsworth, Kahneman, and Mellers affected influential people.
PS: As the reassessment study didn’t consider incomes beyond $500,000, one would be unable to explain the cases of Sundar Pichai or Elon Musk, for example, using this theory.
The writer is professor of statistics, Indian Statistical Institute, Kolkata