craschworks

Does Money Buy Happiness? A Longitudinal Study Using Data on Windfalls
March 2001

Jonathan Gardner
Department of Economics
Warwick University CV4 7AL
[email protected]

Andrew Oswald
Department of Economics Warwick
University CV4 7AL
[email protected]

http://www.warwick.ac.uk/fac/soc/Economics/oswald/marchwindfallsGO.pdf

Abstract

The most fundamental idea in economics is that money makes people happy. This paper constructs a test. It studies longitudinal information on the psychological health and reported happiness of approximately 9,000 randomly chosen people. In the spirit of a natural experiment, the paper shows that those in the panel who receive windfalls — by winning lottery money or receiving an inheritance — have higher mental wellbeing in the following year. A windfall of 50,000 pounds (approximately 75,000 US dollars) is associated with a rise in wellbeing of between 0.1 and 0.3 standard deviations. Approximately one million pounds (1.5 million dollars), therefore, would be needed to move someone from close to the bottom of a happiness frequency distribution to close to the top. Whether these happiness gains wear off over time remains an open question.

Lot's of fascinating stuff on Oswald's site: http://www.warwick.ac.uk/fac/soc/Economics/oswald/