Would You Be Happier If You Were Richer?
A Focusing Illusion
by
Daniel Kahneman, Princeton University
Alan B. Krueger, Princeton University and NBER
David Schkade, University of California, San Diego
Norbert Schwarz, University of Michigan
Arthur A. Stone, Stony Brook University
CEPS Working Paper No. 125
May 2006
Research support provided by the Princeton University Center for Economic Policy Studies is gratefully
acknowledged.
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Most people believe that they would be happier if they were richer, but survey evidence
on subjective well-being is largely inconsistent with that belief. Subjective well-being is most
commonly measured by questions that ask people, “All things considered, how satisfied are you
with your life as a whole these days?” or “Taken all together, would you say that you are very
happy, pretty happy, or not too happy?” Such questions elicit a global evaluation of one’s life.
An alternative method asks people to report their feelings in real time, which yields a measure of
experienced happiness. Surveys in many countries conducted over decades indicate that, on
average, reported global judgments of life satisfaction or happiness have not changed much over
the last four decades, in spite of large increases in real income per capita. While reported life
satisfaction and household income are positively correlated in a cross-section of people at a
given time, increases in income have been found to have mainly a transitory effect on
individuals’ reported life satisfaction. (1-3) Moreover, the correlation between income and
subjective well-being is weaker when a measure of experienced happiness is used instead of a
global measure. This article reviews recent evidence that helps interpret these observations.
When people consider the impact of any single factor on their well-being -- not only
income -- they are prone to exaggerate its importance; we refer to this tendency as the focusing
illusion. Income has even less effect on people's moment-to-moment hedonic experiences than
on the judgment they make when asked to report their satisfaction with their life or overall
happiness. These findings suggest that the standard survey questions by which subjective well-
being is measured (mainly by asking respondents for a global judgment about their satisfaction
or happiness with their life as a whole) may induce a form of focusing illusion, by drawing
people's attention to their relative standing in the distribution of material well-being. More
importantly, the focusing illusion may be a source of error in significant decisions that people
make. (4)
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Evidence for the focusing illusion comes from diverse lines of research. For example,
Strack and colleagues (5) reported an experiment in which students were asked: (i) “How happy
are you with your life in general?” and (ii) “How many dates did you have last month?” The
correlation between the answers to these questions was -.012 (not statistically different from 0)
when they were asked in the specified order, but the correlation rose to 0.66 when the order was
reversed with another sample of students. The dating question evidently caused that aspect of
life to become salient and its importance to be exaggerated when the respondents encountered
the more general question about their happiness. Similar focusing effects were observed when
attention was first called to respondents’ marriage (6) or health (7). One conclusion from this
research is that people do not know how happy or satisfied they are with their life in the way
they know their height or telephone number. The answers to global life satisfaction questions are
constructed only when asked (8), and are therefore more susceptible to the focusing of attention
on different aspects of life.
To test the focusing illusion regarding income we asked a sample of working women to
estimate the percentage of the time that they were in a bad mood in the preceding day.
Respondents were also asked to estimate the percentage of time people with pairs of various life
circumstances (Table 1), such as high- and low-income, typically spend in a bad mood.
Respondents’ predictions were compared to the actual reports of mood provided by participants
in the survey with the relevant circumstances. The focusing illusion predicts a systematic
overestimation of the effect of life circumstances on mood.
Table 1 presents the mean percentage of time that members in each group reported
spending in a bad mood in the preceding work day. It also shows the corresponding mean
predictions offered by the entire group (including individuals whose reports were included in the
actual mood column). The predictions were biased in two respects. First, the prevalence of bad
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mood was generally overestimated. Second, consistent with the focusing illusion, the predicted
prevalence of a bad mood for people with undesirable circumstances was grossly exaggerated.
For example, the average respondent predicted that people with income below $20,000 per year
would spend 58 percent of their time in a bad mood, compared with 26 percent for those with
income above $100,000 per year; the actual percentages were 32 percent and 20 percent,
respectively.
The focusing illusion explains why the results of well-being research are often counter-
intuitive. The false intuitions likely arise from a failure to recognize that people do not
continuously think about their circumstances, whether positive or negative. Schkade and
Kahneman (9) noted that, “Nothing in life is quite as important as you think it is while you are
thinking about it.” Individuals who have recently experienced a significant life change -- e.g.,
becoming disabled, winning a lottery, or getting married -- surely think of their new
circumstances many times each day, but the allocation of attention eventually changes, so that
they spend most of their time attending to and drawing pleasure or displeasure from experiences
such as having breakfast or watching television. (10) However, they are likely to be reminded of
their status when prompted to answer a global judgment question such as, "How satisfied are you
with your life these days?"
The correlation between household income and reported life satisfaction or happiness
with life as whole (assigned an integer value) in national samples typically range from 0.15 to
0.30. (11) Table 2 illustrates the relationship between global happiness and income for 2004 with
data from the General Social Survey. Those with incomes over $90,000 are nearly twice as
likely to report being “very happy” as are those with incomes below $20,000, although there is
hardly any difference between the highest income group and those in the $50,000-89,999
bracket.
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There are reasons to believe that the modest cross-section correlation between income
and judgments of life satisfaction or overall happiness overstates the effect of income on
subjective well-being. First, increases in income have mostly a transitory effect on individuals’
reported life satisfaction (2,12). Second, large increases in income for a given country over time
are not associated with increases in average subjective well-being. Easterlin (1), for example,
found that the fivefold increase in real income in Japan between 1958 and 1987 did not coincide
with an increase in the average self-reported happiness level there. Third, although average life
satisfaction in countries tends to rise with GDP per capita at low levels of income, there is little
or no further increase in life satisfaction once GDP per capita exceeds $10,000. (3)
Fourth, when subjective well-being is measured from moment to moment -- either by
querying people in real time using Ecological Momentary Assessment (EMA) (13) or by asking
them to recall their feelings for each episode of the previous day using the Day Reconstruction
Method (DRM) (14) -- income is more weakly correlated with experienced feelings such as
momentary happiness averaged over the course of the day (henceforth called duration-weighted
or experienced happiness) than it is with a global judgment of life satisfaction or overall
happiness, or a global report of yesterday’s mood.
For example, the correlation between life satisfaction and household income was 0.32 in
data we collected from 745 women in Columbus, Ohio in May 2005. Two other measures of
subjective well-being were constructed for the same sample: the duration-weighted average
happiness rating for all episodes of the previous day and respondents’ own global estimate of the
percent of time they spent in a good or bad mood in the previous day. The correlations of
income with the global report of good mood and with the duration-weighted average of more
detailed reports of happiness were 0.20 and 0.06, respectively; see Table 3. Both correlations are
