How much money really makes you happy?

When I was a student, a friend of mine dreamed of making £100 a day. It felt like an impossibly large sum of money; he just couldn’t imagine spending enough to exhaust such riches. That was almost 30 years ago – the equivalent fantasy today would be over £200 a day. My friend, who lived with his parents, was both naive and wise. His dream income is around twice the UK average salary, several times the global average and around 100 times the global poverty line. How much does someone really need?

Economists have given different answers over the years. In his famous essay Economic opportunities for our grandchildren, John Maynard Keynes argued that if incomes increased eightfold from 1930s levels, “the economic problem can be solved, or at least a solution is in sight”. As expected, incomes have risen sharply, and yet there is no solution in sight. This may be because, as Keynes also noted, there is an insatiable craving for needs that makes us “feel superior. . . our fellow human beings”.

A little over a decade ago Daniel Kahneman and Angus Deaton, both winners of the Nobel Memorial Prize in Economics, found that $75,000 a year (more than $100,000 today—about my friend’s dream income) was enough to streamline daily experiences. More money did nothing to reduce the time people felt anxious, stressed, or sad.

However, there is another measure of happiness: do people rate their lives as satisfactory? Using this definition, Deaton and Kahneman found no limits to the use of money: additional income was correlated with higher life satisfaction at every level.

More recently, psychologists Paul Bain and Renata Bongiorno changed focus: instead of asking how much money is enough, they invited survey participants to imagine their absolute ideal life. Then they asked how much money would be required to attain this life if it came in the form of winning the lottery. These lottery prizes ranged from $10,000 (for those whose absolutely ideal life includes replacing curtains and upholstery) to $100 billion (for those whose absolutely ideal life includes major drama about buying Twitter). However, most people didn’t prefer the grand prize. Winning the lottery $10 million was a popular choice.

Why? One possibility is that nobody really has a clue how to answer the survey question, and $10 million was the central answer, a thousand times more than the minimum and a thousand times less than the maximum.

Another reason is that people are as naive as my friend. Little do they know that after they bought a nicer house and car, paid off their debts, and set up a lavish pension, they’d find they could really use a few more million dollars.

Writer Malcolm Gladwell has a different theory. As a guest on the No fish Podcast, Gladwell argued that the problem with $100 billion is that you have unlimited choices. Simple decisions (pack lunch or buy a sandwich?) become incredibly complex (have dinner in Paris or Copenhagen, or just have my personal chef make something on the plane?). Life is cognitively overwhelming.

Another problem, says Gladwell, is that all challenges are removed from life. Do you like collecting stamps, keychains or beanie babies? Forget it! You can buy them all if you like before lunch in Copenhagen.

My own attitude is slightly different. I don’t want $100 billion, but cognitive overload isn’t the problem. I’m pretty sure billionaires don’t get overwhelmed by the prospect of lunch. And while projects are important, they are also scalable. If you enjoyed collecting keychains, switch to collecting art: Even with $100 billion in expenditures, the project to build the world’s largest private museum will likely have legs.

The real problem is that being a multi-billionaire would change your relationship with every other human being. Keynes knew that we often have a desire to feel a little “superior to those around us,” but when superiority becomes extreme, you become a target for kidnappers, terrorists, scammers, and gold miners of all kinds. Few of your relationships are likely to survive . Can you really trust those who do this?

Bain and Buongiorno, the researchers who found that people would rather have $10 million than $100 billion, argue their finding offers hope for sustainable development because it suggests people do not have unlimited material needs. Maybe.

I draw a different conclusion. The wealthiest people of past societies had material needs they couldn’t meet but we can: air conditioning, air travel, and antibiotics. Our descendants may have material needs that we rarely think of because they are beyond our reach, from teleportation to perpetual youth.

The best hope for sustainable development is not that we stop wanting things that we currently cannot have. Most of what we value is not a question of money. My friend, with his fantasy of making £100 a day, enjoyed drinking beers and listening to music with the rest of us. It was a social lifestyle. In contrast, living with $100 billion must be so terribly lonely.

Tim Harford’s new book isHow to summarize the world

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