Unlocking the Secrets: Can Money Truly Buy Happiness?

A tutorial to explore the question

Vivekananda Das
6 min readJun 14, 2022
Photo by John McArthur on Unsplash

Does money buy happiness? 🤔

I googled the question, and here is what I found:

Courtesy: Google. https://www.google.com/

Later, for something more concise, I asked ChatGPT, and here is what it has to say:

Courtesy: OpenAI. (2023). ChatGPT (Mar 14 version) [Large language model]. https://chat.openai.com/chat

Indeed the question is complex, and the findings of existing studies are somewhat enigmatic.

This article describes how I think about the issue based on my social science education.

Fundamentally, all we really want to know is: “What is the causal effect of money on happiness?”

To investigate the question, we can use the same framework we apply to investigate the effect of a pill or a vaccine on health outcomes. In the social, behavioral, and health sciences, the framework to explore cause-and-effect relationships is called the “Counterfactual Framework.”

Here is a step-by-step method you can use to refine the question and attempt to find the answer:

1. Clearly define the treatment

In this case, the treatment is some amount of money. Let’s pretend you want to know the causal effect of getting an extra $1000 on your happiness.

2. Define the time period

Let’s pretend you want to know the causal effect of getting an extra $1000 on your happiness for 30 days.

3. Imagine yourself in two different worlds (factual and counterfactual)

In these two worlds, everything else is exactly the same, i.e., you have the same family, the same friends, the same Tinder matches, the same Instagram followers, the same furniture at home, the same number of mountains to climb and so forth, except in one world, you have an extra $1000, and in the other, you have an extra $0.

In other words, if your baseline income is $X, you have $(X+1000) in one world, whereas, in the other world, you have just $X.

4. Find the difference in happiness between the two worlds

Is this the most challenging step?

Just be honest with yourself and ask: what would be the difference in my happiness in these two worlds?

You do not necessarily need a scale to measure your happiness; a qualitative difference in happiness in the two worlds will suffice.

For example, here is what I find when I ask myself the same question:

My happiness for 30 days in a world in which I have $(X+1000) is greater than my happiness for 30 days in a world in which I have $X (keeping everything else the same)💰😊

5. The effect is equal to the difference in happiness between the two worlds.

For me, the effect of getting an extra $1000 on my happiness for 30 days is positive. Colloquially, I claim money buys happiness!

Now, let’s try to understand the nuances in the investigation and why different researchers come up with different answers.

First of all, the answer depends on the following:

1) How do you frame the question?

2) Who is in your target population?

For example, keeping everything else constant, getting an extra $1000 will make me happier over a 30-day period than getting an extra $0.

But what if I stretch the timeline of investigation to my entire lifetime? In that case, an extra $1000, on average, may not result in any noticeable difference in my happiness than the $0 situation.

To further complicate the issue, if my baseline annual income is $20,000, then the extra $1,000 will make me happier over a 30-day period; however, if my baseline annual income is $200 million, then getting the extra $1000 may not result in any noticeable difference in my happiness.

Additionally, in quantitative social science studies, researchers target the Average Causal Effect, which may not be relevant to you if you are not close to the average person.

**The average person is a statistically-found-mythological-creature, albeit useful for policy evaluation purposes**

Okay, here is the critical point to remember:

The only difference between the two worlds you conceived is the $1000 extra money.

Everything else stays EXACTLY THE SAME!

Many people often get this part wrong. For example, if I claim that a $1000 increase in my income will make me happier over 30 days, people oppose my statement and say:

“Happiness depends on many other factors. What if you get an extra $1000, but your beloved people betray you? Or your favorite football (⚽) team Liverpool FC loses another Champions League final? Will you be happy?” 🤔

Well, along with my income, if other things changed in my life, then it becomes difficult, if not impossible, to isolate the unique effect of the change in income on my happiness (regardless of the direction and the magnitude of the true effect). In that case, I cannot conclude anything about money’s causal effect on happiness.

Sometimes I hear people say,

“Western countries became richer over the last 70 years, but happiness did not increase similarly within the same period. And so, money doesn’t buy happiness because change in income is not a good predictor of change in happiness.”

Even if their data and conclusion are correct, the method applied to reach the conclusion is wrong.

Why? Because over the last 70 years, many other things have changed in the Western world: family composition, moral values, taste for food and music, economy, geography, demographic characteristics, etc. All these factors may have affected happiness. The question we have to ask is: What would have happened to the happiness of the average Westerner had everything else remained the same over the last 70 years except they became richer?

Another typical example people use to claim that money does not buy happiness is,

“I know many higher-income people who are unhappy and many lower-income people who are happy.”

Again, the issue is that the two groups (i.e., higher income vs. lower income) are possibly not counterfactuals of one another, i.e., many other things are also different between them beyond the difference in income.

To explore the effect of money on happiness, ideally, we need to compare the same group of people in two different worlds — one in which they are higher income and one in which they are lower income — at the same point in time.

Because the above is impossible, practically, we may compare two different groups of people — who we believe to be otherwise, on average, identical except for their income — at the same point in time.

Apples-to-apples comparison is the essence of counterfactual thinking.

To conclude, for any individual human being, except for them, no one on earth can possibly know how money buys their happiness.

Even in the best-case scenario, researchers can investigate the question in a very narrow context (depending on the amount of money, timeframe, and target population). And even in that case, they can only hope to explore the effect on the average person of some target population. It may not be wise to extrapolate that specific finding to your life.

Here is a summary of my understanding of the issue:

Question 1: Is money the ‘ONLY’ thing that buys happiness?

Answer: Hell no!

Question 2: Does money buy happiness?

Answer: Beyond a shadow of a doubt!

Do share your thoughts on the topic. Tell me the outcome of your thought experiment!

And if you would like to read more on how to explore cause-and-effect relationships, here are some suggestions:

[Originally written on June 14, 2022; Updated on December 20, 2023]

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Vivekananda Das

Sharing synthesized ideas on Data Analysis in R, Data Literacy, Causal Inference, and Wellbeing | Ph.D. candidate @UW-Madison | More: https://vivekanandadas.com