New research by Stevenson and Wolfers counters conventional wisdom, shows you can never have too much money

April 29, 2013

According to the Easterlin Paradox, posited by Richard Easterlin in 1974, greater average well being does not correlate with higher average income, that is, more money doesn't necessarily make one happier. Indeed, some version of the credo "money can't buy happiness" has become conventional wisdom. But a new paper by Betsey Stevenson and Justin Wolfers, published by the Brookings Institution, shows a strong link between higher income and well-being among both the rich and the poor.

Later researchers modified Easterlin's hypothesis, noting that it seems to hold after a so-called satiation point—a threshold income level at which one's basic needs are met. What makes the research by Wolfers and Stevenson noteworthy—it has been reported in the Wall Street Journal, the Washington Post, Bloomberg Businessweek, and elsewhere—is that it posits that no such satiation point exists.

After examining the data for more than 150 countries, Stevenson and Wolfers concluded that, while increased income doesn't cause happiness, there is a correlation between a greater sense of one's own well-being and rising income. This holds for both the rich and the poor. The study also indicates that subjective increased happiness is higher in rich countries than in poor ones.