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Does More Money Buy You More Happiness?

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Decision Modeling and Behavior in Complex and Uncertain Environments

Part of the book series: Springer Optimization and Its Applications ((SOIA,volume 21))

Why do we believe that more money will buy us more happiness when in fact it does not? In this chapter, we propose a model to explain this puzzle. The model incorporates both adaptation and social comparison. A rational person who fully accounts for the dynamics of these factors would indeed buy more happiness with money. We argue that projection bias, the tendency to project into the future our current reference levels, precludes subjects from correctly calculating the utility obtained from consumption. Projection bias has two effects. First, it makes people overrate the happiness that they will obtain from money. Second, it makes people misallocate the consumption budget by consuming too much at the beginning of the planning horizon, or consuming too much of adaptative goods.

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Author information

Authors and Affiliations

  1. Department of Decision Analysis, University of Navarra, Barcelona, Spain

    Manel Baucells

  2. UCLA Anderson School of Management, University of California, Los Angeles, CA, USA

    Rakesh K. Sarin

Authors
  1. Manel Baucells
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  2. Rakesh K. Sarin
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Editor information

Editors and Affiliations

  1. Management and Organizations, University of Arizona, 85721, Tucson, AZ, USA

    Tamar Kugler

  2. Dept. Industrial & Systems Engineering, University of Florida, 303 Weil Hall, 32611-6595, Gainesville, FL, USA

    J. Cole Smith

  3. Eller College of Management, University of Arizona, 1130 E. Helen St, 85721, Tucson, AZ, USA

    Terry Connolly

  4. College of Engineering Dept. Systems & Industrial Engineering, University of Arizona, 1127 E. James E. Rogers Way, 85721-0020, Tucson, AZ, USA

    Young-Jun Son

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Baucells, M., Sarin, R.K. (2008). Does More Money Buy You More Happiness?. In: Kugler, T., Smith, J.C., Connolly, T., Son, YJ. (eds) Decision Modeling and Behavior in Complex and Uncertain Environments. Springer Optimization and Its Applications, vol 21. Springer, New York, NY. https://doi.org/10.1007/978-0-387-77131-1_9

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