Wednesday, December 12, 2007

Happiness vs Status

It would seem logical that people would choose happiness over status but many consumers choose the latter. According to Dacher Keltner, Psychology professor at Berkeley, the data across studies show that once people have made it to the middle class, there is a very small correlation between money and happiness (he states a correlation of .11 to .13). "Economists got it wrong" he argues. Keltner explains that money matters to people in the lower class because it allows them necessities like health care and transportation. However, starting in the middle class money does not influence the sense of well being. If this theory is correct then why do consumers act as if more is better?

One explanation is the human the need to display status. According to "In the end, when dealing with (and selling to) people, everything always comes back to status. In a traditional consumer society, he or she who consumes the most, the best, the coolest, the most expensive, the scarcest or the most popular goods, will typically also gain the most status." The importance of status can explain why happiness is much lower in Japan then you would expect based on their economic prosperity and absence of crime and social ills. For consumers in America, the need to display status is one of the major drivers of demand and for many it supersedes happiness.

Another possible explanation to why consumers act as if more is better is because people are poor predictors of what will make them happy. This is the thesis of Daniel Gilbert, Psychologist and author of Stumbling on Happiness. For instance, people may predict that a promotion will give them a great boost in their happiness level, but despite the outcome their happiness level is virtually unchanged. Consumers might predict that buying that new 70 inch screen will make them happier, but it actually has little effect.

Economists are trying to refute this "money doesn't buy happiness" theory, but there is strong explicit data across many studies that supports it. Fortunately for marketers, many people still choose status over happiness or poorly predict that better stuff will make them happy.

For a great lecture that discusses the psychology of happiness download UC Berkeley Pscyh 156 Human Emotion lecture 12/10 from iTunesU

Why Money Doesn't Buy Happiness article in Newsweek

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