People Over React To The Benefits of Wealth

Simplifying the title, people over react to the benefits of wealth.

“Our results are in line with Kahneman et al’s (2006) suggestion that people focus too much on the impact of this one variable on their global life satisfaction, part ofa more general tendency to overweight single inputs when estimating overall satisfaction (Hsee & Rottenstreich, 2004).”

Abstract (Via Aknin, Norton, Dunn)

While numerous studies have documented the modest—though reliable—link between household income and well-being, we examined the accuracy of laypeople’s intuitions about this relationship by asking people from across the income spectrum to report their own happiness and to predict the happiness of others (Study 1) and themselves (Study 2) at different income levels. Data from two national surveys revealed that while laypeople’s predictions were relatively accurate at higher levels of income, they
greatly overestimated the impact of income on life satisfaction at lower income levels, expecting low household income to be coupled with very low life satisfaction. Thus, people may work hard to maintainor increase their income in part because they overestimate the hedonic costs of earning low levels of income.

Introduction (via Aknin, Norton, & Dunn)

A striking inconsistency surrounds the relationship between money and happiness. Despite the fact that money has been shown to have a small – though reliable – effect on happiness in developed countries (Diener & Biswas-Diener, 2002; Frey & Stutzer, 2000), humans devote much of their time and energy to earning it, seemingly motivated by the belief that money will have a substantial impact on their overall life satisfaction (Ahuvia, 2008). For example, the amount of time the average American spends at work has grown steadily over the past several decades, despite the fact that this occupational investment comes at the cost of family and leisure time (Schor, 1991). What is the source of this apparent contradiction between researchers’ conclusions about the relatively modest link between money and happiness versus laypeople’s everyday choices and behavior? We suggest that laypeople engage in behaviors designed to increase or maintain their wealth because they overestimate the impact that income has on well-being.

Click Here To Read: Money matters, but less than people think.

About Miguel Barbosa

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26. February 2010 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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