Can Money be the True Determinant of the Good Life?

Most people spend their entire lives trying to figure out exactly what the point of life is and what makes a good life. There is a good amount of people that would tell you that a good life is one with a lot of money; but does more money always coincide with a better life? The recent CEO's choice to change all of his employees' salaries says a lot about this question.



This Tuesday, April 14th, Dan Price, founder and chief executive of Seattle-based credit card processing company Gravity Payments, announced that he was going to give bonuses- and not just any normal bonuses. The average salary for one of Mr. Price's 120 employees was a humble $48,000, and he plans to raise each and every single one of their salaries to $70,000. 

The question is: how is a company able to miraculously afford a pay roll that has increased by more than $2.6 million?

The answer is simple. Mr. Price took a huge pay cut from his salary; he knocked his originally $1 million salary down to $70,000, as well as agreed to have less company profit. So what drove Dan Price to decide to pay his workers so much more, and how did he make the decision to allocate this pay raise out of his own salary?

Answering these questions is the article "High Income Improves Evaluation of Life but Not Emotional Well-Being," written by psychologist Daniel Kahneman and economist Angus Deaton. In this study, Kahneman and Deaton found that people with higher incomes did tend to have more positive dispositions than those who made less, but this is not the case in all situations. In the study, they found that there is a capstone for this tendency; they found that at $75,000 a year the measures of mood all peak and flatten out. These findings also resonate in the documentary Happy.

Watch the selection of Happy on Youtube: https://www.youtube.com/watch?v=LF6jph_f64I from 00:38-2:15

The implications of these findings connect to what we are learning in countless ways. One could argue that it is clear from these studies that money is correlated to having a good life, but it doesn't end there. More money does not necessarily imply more happiness or a better life, but money to a certain extent does improve the overall well being of individuals which in turn leads to a better life and more happiness. 

Money can only buy you so much happiness.

The figure below represents the findings of Kahneman and Deaton that are discussed in this blog:

 

Fig. 1.

Positive affect, blue affect, stress, and life evaluation in relation to household income. Positive affect is the average of the fractions of the population reporting happiness, smiling, and enjoyment. “Not blue” is 1 minus the average of the fractions of the population reporting worry and sadness. “Stress free” is the fraction of the population who did not report stress for the previous day. These three hedonic measures are marked on the left-hand scale. The ladder is the average reported number on a scale of 0–10, marked on the right-hand scale.

Sources:
http://www.slate.com/blogs/moneybox/2015/04/14/money_and_happiness_when_does_an_extra_dollar_stop_making_us_more_content.html

http://www.pnas.org/content/107/38/16489.full