By Shankar Vedantam, Washington Post Staff Writer
Monday, July 3, 2006; Page A02
When Warren Buffett announced last week that he will be giving away more than $30 billion to improve health, nutrition and education, people all over America reflected on his remarkable generosity, pondered all the noble things the gift would achieve and asked themselves what they would do if someone were to give them that kind of dough.
Halt that daydream: Turns out the Oracle of Omaha is a wizard at more than investing. When it comes to money, giving may buy a lot more happiness than getting.
Buffett may have been thinking of his soul -- "There is more than one way to get to heaven, but this is a great way," he said as he announced the largest gift in the history of the planet -- but he may also have been keeping up with the latest psychological research.
A wealth of data in recent decades has shown that once personal wealth exceeds about $12,000 a year, more money produces virtually no increase in life satisfaction. From 1958 to 1987, for example, income in Japan grew fivefold, but researchers could find no corresponding increase in happiness.
In part, said Richard Layard of the London School of Economics, who has studied the phenomenon closely, people feel wealthy by comparing themselves with others. When incomes rise across a nation, people's relative status does not change.
But surely a Buffett-size gift -- he wants to give away $4 million a day -- would make most people euphoric, right?
Temporarily, that is true, Layard said in an interview. However, social comparisons are not the only factor at play. Another big psychological factor is habituation: Dramatically changing one's wealth does create happiness, but it will last only until people get used to their newfound status, which can be a matter of months or a couple of years at most.
When people win lotteries, for example, Layard said, "initially there is a big increase in happiness, but then it reverts to its original level. So why do people want to win lotteries? . . . They have a rather short-term focus, and they don't seem to grasp long-term ways their own feelings work."
The journal Science reported last week yet more evidence and another theory about why wealth does not make people happy: "The belief that high income is associated with good mood is widespread but mostly illusory," one of its studies concluded. "People with above-average income . . . are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities."
Wait, there's more.
"The effect of income on life satisfaction seems to be transient," the researchers added. "We argue that people exaggerate the contribution of income to happiness because they focus, in part, on conventional achievements when evaluating their lives and the lives of others."
Wow. Let's pause a moment to let all priests, nuns and anarchists take a bow and say, "I told you so!"
"People grossly exaggerate the impact that higher incomes would have on their subjective well-being," said Alan Krueger, a professor of economics and public affairs at Princeton University and an author of the study.
The problem is that once people get past the level of poverty, money does not play a significant role in day-to-day happiness, Krueger said. It certainly can buy things, but things do not usually address most of the troubles people experience in daily life -- concerns about their children, problems in intimate relationships and stressful aspects of their jobs.
When people daydream about winning big, Krueger said, "they focus on all the things they would buy, without recognizing that does not contribute all that much to their well-being."
In fact, the study noted, data from the Department of Labor show that the more money people have, the less likely they are to spend time doing certain kinds of enjoyable things that make them happy. High-income individuals are often focused on goals, which can bring satisfaction. But working toward achievements is different from experiencing things that are enjoyable in themselves , such as close relationships and relaxing leisure activities.
"If you want to know why I think poor people are not that miserable, it is because they are able to enjoy things that Bill Gates has not been able to enjoy, given his schedule at Microsoft," Krueger surmised.
Various studies have shown that people are enormously reluctant to accept a pay cut, even if that would give them more freedom, less supervision or a shorter commute -- all things that are tangibly associated with moment-to-moment happiness. The emphasis on salary is identical to the lottery ticket winner's mistake in thinking that money changes everything.
"One of the mistakes people make is they focus on the salary and not the non-salary aspects of work," Krueger said. "People do not put enough weight on the quality of work. That is why work looks like, for most people, the worst moments of the day."
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