Monday, May 07, 2007

Can Money Buy Happiness?

Ah, one of the oldest philosophical problems and many fine movies have made this topic so alive (The Little Poor Rich Girl by Shirley Temple come immediately)

If money buys happiness then it worth to go through all the hard work to get money. If not, then why so many people continue to spend most of their time to get money which has little effect on happiness.

There has been numerous studies (click here for wide array of it) on happiness and income. Easterlin is one of the earliest economist to go through happiness data (from self declare dataset) and found paradox of happiness. People with same amount of money tend to be happier in poor country, but happiness don’t increase over time with economic growth. Is it possible that it is relative income having more impact to happiness instead of absolute income?

A global study of Sexual Attitudes and Behaviours by Pfizer in 2002 seems to be an odd way to study the relation but please bear with me for a while. It has more than 27 000 respondents from 28 countries with fascinating questions. (yup, sometime I have too much available time)

Three of them will be used in this mini study (How happy have you been with your life in the past year? How physically pleasurable did you find your relationship with your partner to be in the past year? How would you rate your overall health?) The numbers are in percentage of population stating they in moderate/good/very good (answer 3-5 in a scale of 5). Quite interesting to know that Indonesian has the highest number (98%) for question number two with Japan as the lowest (57 %).

I pair the data set with average income per capita of each country for that year, adjusted for cost of living or as purchasing power parity (PPP) in economic jargon so it is comparable across countries. Then I set up a log liner regression model with happiness as dependant variable and income, health and physical relationship as independent variable.

Before going to the result, some caveats need to be address (especially for economists and econometricians out there). There are some issue on subjective data, not that subjects intentionally being untruthful but they may have recalled problem. Some studies found that when asked about the past subjects tend to put emphasis on the extreme than average. Furthermore, I only got the average percentage of each question not the complete panel so the result is not as robust as when I can get the income of all participants. But as Donald Rumsfeld would say, you do regression with the data you have and not the data you want (hey, this is not my PhD dissertation).

I found that income has no effect what so ever on happiness (P value = 0.4472). On the other hand, health is has significant effect. (P value = 0.0140) and one percent increase of population that satisfied with their health correspond to 21,4 % increase in happiness. What about the last variable? The significant level jump to the roof (P value = 0.0001) and one percent increase in population satisfied with their physical relationship correspond to 39.58 % in happiness.

Hmm.. More study certainly is needed. If government want to increase people’s welfare, should it put more emphasis on *ahem* quality of life aspects than the usual investment/productivity/industrialization? So if you have been feeling unhappy lately despite all the material achievement, relax a bit and listen to the old tune by Rolling Stones:

I can't get no satisfaction

I can't get no satisfaction

'Cause I try and I try and I try and I try

I can't get no, I can't get no


dika said...


both things *the 'fake' money happiness and the 'real' happiness need a lot works.. :D

Berly said...

But now we know where to concentrate our effort :-D

Jay said...

What about the endogenity in the model. Well, you can be happy and therefore causing yourself in a good health, great physical relationship and nice income.

Well, i guess it is worth-tried effort in modelling happinness.

Oh yeah, Lionel Luthor's words in Smallville came crossed my mind. He said something to Chloe about all the hatred towards Luthors family in Smallville. Here is what he said

"Young lady,,i know that they are angry with me,,all the Smallville residents,, but i value their anger."

Turns out that he is an economist also.

Berly said...

I checked the degree correlation (dont know how to upload a table in blogspot though).

Between the two *ahem* quality of life variables, the degree of correlation is 49 %. That is not too high. All other combinations has correlation degree less than 28 %.

Its a one year series so I could not run fixed effect or GMM regression. But your point of mind over body causality is worth exploring indeed.

Berly said...

Also need to add these regression stat:

Adjusted R Square: 0.6578
Standard Error: 0.0492
Anova stat: 2.13702E-06

Jennie said...

As Bhutan's King Wangchuck once coined the term "Gross National Happiness," which may explain better what it takes to be happy. ;)

Jennie S. Bev

guebukanmonyet said...

I think money can't buy happiness completely, but it doesn't mean that it can't make you happy at all. I mean at some points people will need money to fufill their physical needs. But just as this life requires balance, money alone is not enough.

Berly said...

Hi Jennie, thanks for dropping by and the info on GNH. Glad some country take this seriously and I am curious what are the variables they include.

There are numerous empirical studies that confirm your opinion. Money has positive effect to happiness/well being up to sufficiently comfortable (but not luxurious) living condition (depend on cost of living in that area/country) but loose the effect afterward. That's what interesting on this line of research, many possible policy recommendations.

Jennie said...

Berly, check your email, I've sent you somebody's thesis on GNH. Enjoy, my favorite economist!

;) (wink wink)

~ Jennie S. Bev