Thursday, September 29, 2011

The Social Science literature and 50 cent: "Get rich or die tryin"

My alternate title was a stupid phrase we used to say in euchre when the Queen of diamonds was played....
Call: "Can't buy me love.
Response: "Love don't come for free"
this lasted until 2004-ish when Dr. Nirav Patel forever ruined the game by insisting on using the response "Get in my belly" a la Austin Powers. No class! But onto economics.......

Dunn, Gilbert and Wilson (2010) produced an interesting literature review of the money-happiness link that seems to be en vogue throughout the social sciences, including economics. Authors premise is that if you're rich and not happy then you're not using your wealth correctly. Based on numerous happiness studies the authors offer 8 principles to using your money to make you happier. Some are obvious others not so much......the intuition and research cited within are the most interesting parts. Great read and easily accessible.
The principles are:
1. Buy experiences instead of things
2. Help others instead of yourself
3. Buy many small pleasures instead of a few big ones (not sure I agree...I loved my truck and derived pleasure from driving it everyday)
4. Buy less insurance (actually should definitely have health and life insurance)
5. Pay now and consume later (anticipation is one of the sources of joy...its eliminated when we charge it or go into debt to buy since we're still paying for it after the initial joy wears off)
6. Think about what you're not thinking about (before you purchase what you believe will make you happy...think and consider the downsides and opportunity costs)
7. Beware of comparison shopping (details can be overwhelming...perfect can be the enemy of the good)
8. Follow the herd instead of your head (find out what other people liked and enjoyed as a departing point)

Caveat: Beware of the studies which claim that rich people are not any happier than less rich people. Maybe, but one has to be careful of the question and how it is worded. If you asked anyone on a random day "How ya feeling? Are you happy?" Odds are that money couldn't completely wipe away all the daily pains like traffic, unruly kids, long hours, and all the million other little drags on present moment happiness that is also known as life. However if you ask the question with a longer term in mind or more broadly such as "How happy are you with your life over the last 10 years?" or "How satisfied are you with your life and accomplishments?" you'll get different answers.

Reading the poverty literature and the work produced by Duflo (MIT) and Karlan (Yale) its clear that poverty is stressful and takes a toll. The more wealth and savings a person, city or nation has, the more they are shielded from uncertainty and economic shocks. Peace of mind goes a long way towards being happy.

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