“The level of income or money is one of the most investigated variables in subjective well-being studies. Researchers investigated the relationship between money and subjective well-being, and the general implication about this relationship shows that low levels of income have a significant relationship with the low levels of happiness and money has a buffering effect for preserving individuals from unhappiness. On the other hand, the good level of money does not guarantee happiness in life.”
In 2010 Kahneman and Deaton found the relationship between money and happiness is hockey-stick-like. Happiness rises with income until roughly $112,000 in today’s inflation adjusted income. Beyond this it will ever so slightly increase your life evaluation and will have essentially no impact on your day to day experience of happiness.
In a more recent paper Matt Killingsworth argued that happiness continues to increase indefinitely with more income. The main issue one takes with is work is he used an logarithmic scale treatment of income. So, if you keep exponentially increasing your income (e.g. 50k to 100k to 200k to 400k to 800k, etc.) you will be marginally happier. This is not a very practical treatment.
When we view the money and happiness relationship in a linear fashion we get the intuitive pattern of diminishing returns: to a normal person an extra $25k would be a good happiness boost but to Bill Gates it wouldn’t make a difference.
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