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Does rising wealth buy greater happiness?

How much does an increase in wealth increase happiness? If you win the lottery, receive a large unexpected inheritance or some other good fortune comes your way, will it permanently make you happier?

For people whose basic needs have been met, the answer appears to be no. Each of us has a happiness "set point" that prevails over time. We can temporarily deviate from that point in either direction as good or bad things happen to us, but in the long run we return to our innate level of happiness.

But what about the very poor who have unmet basic needs for food, housing, clothing, etc.? Does an increase in material wealth cause a permanent increase in happiness in this case?

Casual observation suggests not. For example, median wealth and living standards have increased by many orders of magnitude over the last 2,000 years or so. But as noted in a description of recent research on this topic at Vox EU, a website devoted to research-based policy analysis and commentary from leading economists, "the enhancement of material wellbeing should have made human beings many orders of magnitude happier today than they were at the time of Aristotle. Existing evidence indicates, however, that happiness has not really increased over time."

The authors, economists Sebastian Galiani, Paul Gertler and Raimundo Undurraga, go on to provide a more formal test of this hypothesis using data from housing projects in poor areas of El Salvador, Mexico and Uruguay. The housing, although very basic, represents a large improvement over existing conditions in these areas.

The families receiving the improved housing were interviewed 16 months later, and the researchers found a substantial initial increase in happiness above the baseline level. Interestingly, however, eight months after that -- two years after moving to the new housing -- about 60 percent of the increase in happiness goes away.

As the following graph shows, this is also true of other measures of increased well-being such as floor quality and rain protection:

Figure 1. Satisfaction with quality of life and housing characteristics: Mean and 90% confidence interval

Galiani fig2 10 jul

This research doesn't address whether happiness would decline further as more time elapses, so we don't now for sure if any of the increase in happiness is permanent. But the results do clearly indicate that much of the increase in happiness from a substantial change in material wealth is transitory, and that's true for both rich and poor alike.

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