The Price of Happiness
Research indicates that the relationship between income and happiness is logarithmic, meaning that while happiness increases with income, the marginal utility of additional dollars diminishes. However, because real-world income distributions are exponential, the actual impact of money on happiness remains significant across all income levels.
Why it matters
Understanding this 'geometry of happiness' provides insights into why income inequality remains a persistent social issue despite overall economic growth.
People typically think about money in raw units such as dollars. Yet research on money and happiness typically examines the association between happiness and the logarithm of income, or Log(income). This logarithmic association between income and happiness is frequently either overlooked or misunderstood. To help address this, the present report examines this association and makes five key points. First, in a large U.S. sample, the shape of the association between happiness and Log(income) was extremely systematic: from $10,000/y to over $500,000/y, average happiness rose almost perfectly linearly with Log(income), with group-level correlations of 0.98-0.99 across a range of happiness measures, including both in-the-moment experience and overall life satisfaction. Second, a linear association between happiness and Log(income) implies that the marginal utility of additional dollars diminishes exponentially, though never mathematically plateaus.
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