Angus Deaton’s badly misunderstood paper on whether happiness peaks at $75,000, explained

Angus Deaton is many things: a celebrated Princeton economist, an expert on measuring well-being and poverty, and, as of Monday morning, the 2015 Nobel laureate in economics. Deaton has an unusually high public profile for an economist — to the point that his research was once cited on Orange is the New Black.

In season three, episode seven, about 36 minutes and 30 seconds in, Piper Chapman (Taylor Schilling) cited a 2010 study by Deaton and Princeton psychologist Daniel Kahneman (who also won a Nobel in economics in 2002). This being Piper, she’s less citing it than she is condescendingly richsplaining it to Daya (Dascha Polanco). Appropriately, given her character, Piper takes exactly the wrong lesson from it.

“There was this study that said that money does buy happiness, up to $75,000 a year,” Chapman says. “But after that, increasing your income doesn’t make you any happier.” You can watch the video above.

This statistic gets tossed around a lot. Most notably, CEO Dan Price raised the salary of all 120 people at his company, Gravity Payments, to $70,000 and cut his own salary to that level, because of Deaton and Kahneman’s research (why he didn’t bump it to their actual figure of $75,000, I dunno).

But the factoid is wrong. It’s based on a cursory, wrongheaded reading of the study, and it ignores tons of evidence suggesting that there is no such tipping point. Having more money is correlated with having a better, more satisfying life, no matter how high up the income ladder you go. Don’t believe anyone who tells you otherwise. Even Piper.

Deaton and Kahneman’s study estimates how Americans’ happiness levels change with income. They use a big data set: 450,000 responses to daily Gallup polls conducted in 2008 and 2009. The polls don’t track the same people over time, so they can’t show whether individual people get happier when their incomes go up, but they can determine how much happier rich people are, on average, than poorer people.

They did, indeed, find that emotional well-being taps out at $75,000. But “emotional well-being” is a very specific thing. It’s an indicator about people’s moods, measured by asking people about their emotions the day before. In the case of this study, respondents were asked questions of the form, “Did you experience the following feelings during a lot of the day yesterday? How about _____?” with emotions like “stress,” “happiness,” “enjoyment,” “worry,” and “sadness” filling in the blank. These kind of questions tell you what people’s mood was the day before. But they don’t tell you if those people like their lives overall.

There’s another, more holistic way to measure happiness, often known as “life satisfaction” or “subjective well-being.” That’s not tracked by asking about feelings. In the case of the Deaton-Kahneman study, it’s tracked by asking respondents to imagine the best possible life for themselves and then rank their current lives on a 0-to-10 scale, relative to that best life. This question is known as “Cantril’s ladder.“ This doesn’t tell you how people are feeling on a day-to-day level. But it tells you how satisfied they are with their lives as a whole, how well they think they’re doing overall.

I think it’s fair to say that this metric — life satisfaction — is a better gauge for what people actually want for themselves than emotional well-being is. I don’t want to be perpetually giddy and worry-free; I do want to have a life that I’m, on the whole, happy with. Think about it this way. Elon Musk’s life is much more stressful than mine. After all, he has to run two major companies — SpaceX and Tesla Motors — among numerous other responsibilities. That’s an incredibly stressful schedule. But his life is still way, way better than mine. He launches rockets to space for a living! He builds sleek, amazing electric cars that can park themselves! He gets to draw up plans for a wacky vacuum train that could go from LA to New York in 45 minutes, and have people take the idea very seriously! He’s worth $13.3 billion! By any reasonable standard, he lives a fantastic life. But that wouldn’t necessarily show up if you polled him about if he felt stressed or worried or sad the previous day.

This mood versus life satisfaction distinction really makes a difference when you’re looking at income. While people’s day-to-day moods stop getting better after $75,000 in household income, Deaton and Kahneman find there’s absolutely no drop-off point for life satisfaction. It’s not linear; $10,000 does more for you if you’re making $50,000 than if you’re making $1 million. But the effect is there, constantly, no matter how much you earn.

This idea — that there’s no tipping point beyond which money doesn’t increase life satisfaction — is backed up by other research, as well. Work by economists Betsey Stevenson and Justin Wolfers comparing happiness across countries, across several different surveys, has found that there’s no satiation point. For developing and developed countries alike, being richer is correlated with higher life satisfaction. Here, for example, is the income versus life satisfaction graph using Gallup’s ladder question:

Here are some plots using responses to the World Values Survey, which asks, “All things considered, how satisfied are you with your life as a whole these days?”

They get the same result with questions that ask people, directly, if they’re happy. This is a quite different from questions like, “Did you experience stress yesterday?” that Deaton and Kahneman used, but it also measures emotional well-being, rather than life satisfaction. Here are results for the World Values Survey question, “Taking all things together, would you say you are very happy, quite happy, not very happy, or not at all happy?” Again, richer countries are happier, and there’s no drop-off point:

Stevenson and Wolfers found this was true within the US, as well. They find that responses to the General Social Survey question, “Taken all together, how would you say things are these days — would you say that you are very happy, pretty happy, or not too happy?” improve with income, with no drop-off point:

Same goes for a Gallup poll question asking Americans, “Generally speaking, how happy would you say you are — very happy, fairly happy, or not too happy?” Only 35 percent of people in households making under $10,000 a year reported being very happy. Eighty-three percent of people in households making $250,000 to $500,000 did. And 100 percent of people making more than $500,000 did. There was no point at which more money didn’t correlate with more happiness.

“While the idea that there is some critical level of income beyond which income no longer impacts well-being is intuitively appealing, it is at odds with the data,” Stevenson and Wolfers conclude. “As we have shown, there is no major well-being dataset that supports this commonly made claim.” They note the Deaton-Kahneman study doesn’t contradict this finding at all, because it uses very different questions more explicitly focused on people’s transient moods.

So don’t home in on that one number, in one study. Focus on the huge amount of evidence suggesting that money always makes you happier.