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(Andrei Tselichtchev/Getty Images/iStockphoto)
(Andrei Tselichtchev/Getty Images/iStockphoto)

Money might buy you happiness, if you spend it right Add to ...

Moreover, they found that there is no sign that the pleasure gained from another dollar earned ever disappears entirely. Although it will create a lot more happiness for a poor family, a $10,000 lottery win will increase the happiness of even the wealthiest person.

The Easterlin Paradox, they argue, is simply the result of insufficient data. When it comes to cross-country comparisons, for example, Prof. Easterlin was able to look at only 16 different nations, too few to find any statistically significant differences in happiness.

“Studies by us and others have pointed to a robust positive relationship between well-being and income across countries and over time,” Profs. Stevenson and Wolfers write. “If there is a satiation point, we have yet to reach it.”

In many ways, these new findings are more in keeping with common sense. As the bawdy vaudeville singer (and amateur happiness economist) Sophie Tucker once said: “I’ve been rich and I’ve been poor. Believe me, honey, rich is better.”

One of the difficulties, however, is deciding exactly what we mean when we talk about being “happy.” There are different kinds of happinesses, different flavours. Two distinct categories that are often conflated are emotional well-being – the amount your smile, laugh or enjoy yourself on any given day – and an overall evaluation of your life.

When researchers ask people about this second category, they often tell respondents to imagine their life on a ladder: If zero is the worst possible life and 10 is the best, where do you see yourself?

Profs. Stevenson and Wolfers are measuring life satisfaction, which does seem to continue to grow with income. The pair acknowledged that other studies have shown that your day-to-day enjoyment does not increase beyond a certain dollar figure.

The most famous is a 2010 study by Nobel Prize winner Daniel Kahneman and Angus Deaton, past president of the American Economic Association, which found that after $75,000, increased riches did not give people any more emotional enjoyment.

So perhaps the answer is, yes, enormous riches can give you a sense of satisfaction, but the lottery-commercial dream of a sun-drenched life free from worry and stress is an illusion.

“Money seems pretty good at making us feel satisfied with our lives, but it doesn’t seem to have as much of an impact on day-to-day good feelings,” says Elizabeth Dunn, a professor of psychology at the University of British Columbia and the co-author of the recent book Happy Money .

Prof. Dunn did her graduate work in happiness studies. When she finally got a job as a professor, she found herself with a sudden windfall – a normal, grown-up salary. The young professor decided to work with her friend Michael Norton at Harvard Business School to try to figure out how to get the most happiness bang for her buck.

In their book Happy Money, which came out this week, Profs. Dunn and Norton look at both the economic and psychological research to find the answer. “We’re always told that money doesn’t buy happiness,” Prof. Dunn says. “But just because it often fails to buy happiness, doesn’t mean it can’t.”

Most of us are surprisingly bad at figuring out how to spend our money to make ourselves happiest. “We do so many things in a day that it’s impossible to figure out how much each individual activity is affecting our happiness,” she says.

In building a baseball team or managing stocks, going with your gut is worse than going with the statistical analysis. The same, they say, is true of maximizing your joy-to-dollar ratio. For example, although owning a house is often seen as an important step toward adult contentment, there is next to no evidence that it actually makes us happier.

Researchers tracked thousands of people in Germany who moved from one home into nicer one. Five years later, they found that the homeowners remained more satisfied with their new houses, but did not report more satisfaction with their lives. It had not made them any happier.

In contrast, people who spent money on experiences – whether trips or fancy dinners or a night of dancing – reported feeling happy when thinking about their purchases.

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