Sunday, October 28, 2012

A Life without Pleasure Isn't a Life without Joy

Panic struck Homer one December as he realized that Christmas was ruined because the Simpsons family had no money for presents. Marge’s secret stash of Christmas cash had been blown away to remove Bart’s new tattoo. Homer’s annual Christmas bonus was cancelled by his Scrooge-like boss. Homer becomes particularly distressed after seeing Flanders’ amazing Christmas lights and presents. Stupid Flanders. To save Christmas, Homer moonlights as a mall Santa to bring in extra income to buy his family presents but finds out that two-weeks’ worth of work only brought in $13 dollars. So, he gambles it at a racetrack but loses it all. D’oh!

I recently heard someone ask the question, “What is the ontological argument for economic growth?” From economists to politicians to the ordinary Joe on the street, everybody seeks to increase income believing that it would increase happiness. Evidence supports this. In a survey of Canadians, people were asked to rate their life satisfaction from 0 to 10. It turns out, more income increases satisfaction – more for people at the bottom than those at the top. But, it’s not that simple. Nothing really is. 

Figure 1: Satisfaction in Life Increases with Income
People making $80,000 or more are generally older (average age is 45 to 49), more educated and more likely to be married. So is it income that makes people happier or is it education or is it having a life partner? Is it a confluence of the three or the infinite number of other related factors?

Using statistics and a survey of 120,000 Canadians, the impact of income on satisfaction can be determined while controlling for over 40 other factors that could also affect one’s happiness. These other factors include health, family and behaviour. Controlling for these, it turns out that income doesn't directly have much effect on life satisfaction. Using the same scale of life satisfaction from 0 to 10, increasing income doesn't even change satisfaction more than 0.1.

Figure 2: Impact of Household Income on Life Satisfaction*
* All regression results are always interpreted as comparators. So this chart says, keeping all else equal, a person earning $80,000 or more is only 0.07 happier than someone not working or earning less than $20,000, on a scale of 0 to 10.

What matters more is relative income. People in the top 10% of the income distribution are over 0.25 more satisfied than those at the very bottom. Traditionally, money is seen to have three functions: medium of exchange, unit of account and store of value. Due to our primal competitive spirit, it seems that money has a fourth purpose, to promote social status. “Stupid Flanders”.

Figure 3: Relative Income has a Strong Impact on Life Satisfaction*
* This chart says, keeping all else equal, a person earning in the top 10 per cent of income earners are just over 0.25 happier than someone in the bottom 10 per cent, on a scale of 0 to 10.

Age seems to have a strong effect. The survey begins collecting data for those who are 12 years old, who seems to be happier than older age group. They will serve as our defaults. At this age, what is there really to be distressed about? At 40, people seem to be the most unsatisfied but the golden years bring sunshine as people gradually become happier. 

I know what you’re thinking. Kids. And, it is true (although these results are controlled for the presence of kids). Separate statistics show that those with kids that are five and under are 0.05 happier while those with kids less than 11 are 0.05 more distressed. Maggie and Bart?

Figure 4: Age has a Relatively Strong Effect on Satisfaction

Compared to those who are single, married people or those in a common-law relationship seem to be the happiest. Those that are widowed, separated are divorced are obviously less satisfied in life.

Figure 5: Age has a Relatively Strong Effect on Satisfaction

By far, though, health has the strongest impact on life satisfaction. Worsening physical and mental health and increasing workplace stress significantly decreases life satisfaction. Physical activity increases happiness. Relationships also matter. Those who have stronger links to the community are generally more satisfied than those with weaker links.

These results should not be distorted not to say that income does matter. It does – particularly when one doesn’t have any. Income guarantees food security, increases the likelihood of having sex, affects one’s mental health and, all-in-all, allows for a balanced life. But these results suggest increasing income doesn’t always increase happiness or the increases are always not constant. Pass a certain point, increasing income does very little to increase one’s satisfaction. As The Economist puts it, “a life without pleasures isn’t a life without joy.” Having money is only one element of the overall picture. Being active and healthy, having strong relationships and being balanced is also important.

In the end, Homer brings home the dog that lost him $13 dollars in the race. As he admits to the family that he didn’t receive his Christmas bonus, failed to buy presents and ruined Christmas, the dog runs into the house, and Marge said “this is the best gift of all, Homer… it’s something to share our love. And frighten prowlers.” The family circles around and Christmas is saved. Homer discovers that the happiness of his family depends on more than what caused his panic: dough!