More on Money and Happiness

People quickly become accustomed to the lifestyle permitted by their current income, which then establishes a minimum benchmark in their assessment of happiness. Thus, when the economy tanks and incomes plunge, happiness declines as people feel deprived, unable to afford all the things they used to have. Furthermore, people misconceive their past and future happiness, because their current income is the benchmark rather than the standard actually prevailing at the time. They assess their happiness 5 years ago as less than it really was, evaluating their previous living level in terms of the higher income that they have come to enjoy, not the lower-income benchmark that actually existed at that time. Similarly, they judge their future happiness to be greater than it actually will be, because they do not anticipate that their income benchmark will rise as incomes rise generally in the economy. However, if they hit it big in the lottery, their happiness does increase, because this is a case where an increase in one’s own income is not accompanied by an increase in others’ incomes.