Chicago Booth Review Podcast Does Poverty Make You Behave Differently?
- September 13, 2023
- CBR Podcast
How does the experience of poverty shape decision-making? Research suggests that, rather than bad decisions leading to poverty, being poor can lead to some poorer decisions. At the same time, research also indicates that the stark financial choices faced by poor people can actually make them better at assessing the trade-offs involved in some decisions.
Hal Weitzman: You may have heard people say that if people are poor, it’s because they’ve made bad decisions. You may have heard others say that’s nonsense, and however good you are at making decisions, it might not keep you from poverty.
But what if the experience of poverty itself actually shapes your decisions? Research suggests that, rather than bad decisions leading to poverty, being poor can lead to some poorer decisions. For example, poverty increases the stress of evaluating a difficult financial problem, which is the equivalent for a poor person of losing full night’s sleep. At the same time, research also suggests that the stark financial choices faced by poor people can actually make them better at assessing the trade-offs involved in some decisions.
Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I’m Hal Weitzman, and in this episode we explore the research on this issue by revisiting two of our features from 2018 on how money affects our mental state. In the first, regular CBR contributor Alice Walton dug into the research on the effects of poverty on decision-making. The piece was titled, “How Poverty Changes Your Mind-Set,” and it’s read by Julie Granada Honeycutt.
Reader: The proportion of the global population living on less than $1.90 per person per day has fallen—from 18 percent in 2008 to 11 percent in 2013, according to the World Bank. In the United States, however, the poverty rate has been more stubborn—41 million people lived below the country’s poverty line in 2016, about 13 percent of the population, nearly the same rate as in 2007. Recent policy initiatives haven’t meaningfully reduced that rate. House Speaker Paul Ryan (Republican of Wisconsin) indicated this past December that the government would make fighting poverty, but also welfare, which many Republicans believe is a failed policy, a priority in 2018.
US lawmakers have expressed frustration when investments such as welfare programs don’t pull people out of poverty. “I believe in helping those who cannot help themselves but would if they could,” said Senator Orrin Hatch (Republican of Utah) this past December, when explaining his views on government spending. “I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger, and expect the federal government to do everything.”
Hatch’s statement reflects a common view that removing government support would force many poor people to improve their conditions themselves. Without welfare and government assistance, would able-bodied people find a job, get an education, stop buying lottery tickets, and focus on paying bills?
Not quite, indicate researchers, whose work is telling a different story of poverty. Contrary to the refrain that bad decisions lead to poverty, data indicate that it is the cognitive toll of being poor that leads to bad decisions. And actually, decisions that may seem counterproductive could be entirely rational, even shrewd. The findings suggest that to successfully reduce poverty, it would help to take this psychology into account.
What drives ‘bad’ decisions
In a 2013 study published in Science, researchers from the University of Warwick, Harvard, Princeton, and the University of British Columbia find that for poor individuals, working through a difficult financial problem produces a cognitive strain that’s equivalent to a 13-point deficit in IQ or a full night’s sleep lost. Similar cognitive deficits were observed in people who were under real-life financial stress. Theirs is one of multiple studies suggesting that poverty can harm cognition.
But it was the fact that cognition seems to change with changing financial conditions that Chicago Booth’s Anuj K. Shah, along with Harvard’s Sendhil Mullainathan and Princeton’s Eldar Shafir, two authors of the Science paper, were interested in getting to the root of. They suspected that poverty might essentially create a new mind-set—one that shifts what people pay attention to and therefore how they make decisions.
“Some say you really have to understand the broad social structure of being poor, and what people do and don’t have access to,” says Shah. “Others say that poor individuals have different values or preferences. We stepped back and asked: ‘Is there something else going on?’”
To test the idea, the researchers designed experiments that stripped away money and put other resources in demand. In one such study, the researchers had participants play variants of the popular games Wheel of Fortune, Angry Birds, and Family Feud, looking for how scarcity affected players’ attention. “Rich” people in these constructs had more chances to earn points, so more time to play the game. “Poor” people had fewer chances.
In the Wheel of Fortune–style game, the researchers measured how cognitively fatigued the players became. Logic would predict that rich players would be more fatigued, since they were allowed more turns to make more guesses. Instead, the researchers observed that poor players, having received fewer tries to guess at the answers, were more fatigued, having put more effort into each guess.
In an Angry Birds–style game in which people tried to shoot targets, rich players were given more chances to train a virtual slingshot on a target. Poor players, given fewer attempts, spent longer lining up their shots, and many scored more points per shot than rich players. For all the extra shots rich players had, they didn’t do as well, proportionally. “It seems that to understand the psychology of scarcity, we must also appreciate the psychology of abundance. If scarcity can engage us too much, abundance might engage us too little,” the researchers write.
In some ways, scarcity appears to make people better problem solvers. In these game versions of the world, says Shah, the players randomly assigned to be poor focused on what was concrete and in front of them. And that’s what happens in real life, too, write Shah, Mullainathan, and Shafir. When money is tight, “the very lack of available resources makes each expense more insistent and more pressing. A trip to the grocery store looms larger, and this month’s rent constantly seizes our attention. Because these problems feel bigger and capture our attention, we engage more deeply in solving them.”
Unfortunately, one way to solve the problem in the short run is to borrow, which can backfire. In the experiments, when poor participants were allowed to borrow resources, that borrowing undid some of the advantages of scarcity. When the researchers looked at performance as a function of borrowing, they find that poor players often borrowed more than they should have, and performed better when they weren’t permitted to borrow. Poverty led to wise decisions, but it also led to counterproductive ones.
Trade-offs become real
Shah, Mullainathan, and Shafir looked further into how poverty affects decision-making, and find that poor people may evaluate trade-offs better than their wealthier counterparts. Just as the Angry Birds players spent more time lining up a shot, people with actual financial concerns might also make better, more focused decisions, closer to what economists consider ideal.
The researchers asked real people of various socioeconomic strata if they were willing to travel an extra 30 minutes to save $50 on a $300 tablet. Some said they were. But when asked if they’d drive that far to save the same amount on a $1,000 tablet, some of the respondents changed their minds. Their answer depended on their income.
Many people were, irrationally, more likely to say yes when buying a $300 tablet rather than a $1,000 one. But that response was more common among wealthier people. For poorer individuals, the cost of the tablet often didn’t matter—regardless of the price, they were just as likely to travel for the discount.
That’s the correct financial decision, according to traditional economics—to drive the extra distance no matter the original cost. Saving $50 is the same regardless of the amount of the item in question. But wealthier participants saw the savings in relative terms, noticing the percentage savings. By contrast, poorer participants thought in absolute terms. To them, $50 saved was $50 to spend on groceries or the electric bill.
The same pattern showed up in experiments that involved smaller and larger amounts of money or other rewards. Even calories fit the pattern: people who were dieting, and therefore in a scarcity mind-set, recognized that an order of McDonald’s fries was just as fattening whether thought of in terms of daily or weekly calorie intakes. But people who were not dieting were more swayed by context. Once again, scarcity prompted the more accurate decision.
Put it into practice
If people in poverty are making smart decisions considering the situation, how could that be recognized and better encouraged? There may be ways to help people when they’re facing potentially expensive borrowing decisions. For example, Chicago Booth’s Marianne Bertrand and University of California at Berkeley’s Adair Morse studied high-interest payday loans and find that people made better decisions when the interest rate was expressed in terms of dollar amounts, namely the cost they’d pay over three months. “We’d explain this by saying that a dollar amount is a lot more concrete,” says Shah. “You can think about exactly what you’d have to give up to pay off the loan.”
“Program designers and policy makers often suffer from a failure to accurately take the perspective of the people they are trying to help,” says Chicago Booth’s Christopher J. Bryan. “They design programs that would be appealing to people if they had the luxury of being able to devote careful thought and attention to considering them. But poverty imposes a heavy attentional ‘tax’ that prevents people from devoting that kind of thought to new opportunities, so program uptake is low.”
Bryan was the lead author of a policy paper that recommended new strategies to policy makers and other relevant parties based on recent findings. Among other things, he and his coresearchers advise that an effort be made to reduce the up-front cost of future-oriented behaviors. For example, they point out that in a study by researchers at the World Bank, Harvard, and Yale, giving kids free school uniforms boosted school enrollment in Kenya by more than 6 percentage points. Similarly, researchers at Stanford, Harvard, and the University of Toronto, in conjunction with H&R Block, find that offering US students assistance with their applications for federally funded college student aid has been shown to increase enrollment in college by 24 percent.
The researchers urge service providers to weigh price and inconvenience carefully, particularly when offering health-related services, which many people may forgo if the cost or the distance is too great. A program in Uganda brought health products such as water-purification tablets and antimalarial drugs to people door-to-door, which removed the issue of making people travel to get these products. That simple step to counter the inconvenience of seeking out products and services had an effect. “It can sometimes be better to charge a small fee and make a service very convenient than to charge nothing for a very inconvenient service,” write the researchers. In this case, the cost of delivery was included in the price of the products.
The researchers also recommend taking into account the timing of incentives—and they advise to avoid offering them when money is tight and people are consumed with the pressing need to budget what little they have to meet basic needs. In India, where sugarcane farmers are paid annually after the harvest, farmers’ attention scores were the equivalent of 10 IQ points higher than just before the harvest, when farmers were relatively poor, according to data from the 2013 Science study mentioned earlier.
Offering subsidies or other incentives when people are more receptive to and have the spare capacity to consider them, such as after a harvest or a payday, may make a difference over the long run. One effort, in Tanzania, asked people to sign up for health insurance at cashpoint locations right after payday, and the timing led to a 20 percentage point increase in health-insurance use.
Introducing cognitive aids can help address the limited capacity for attention that may constrain people in poverty. In one study, it helped to show farmers research regarding the most productive ways to plant their crops. When poor, stressed, and in a scarcity mind-set, farmers had a harder time taking in the information. “This result has nothing to do with the intelligence of the farmers,” writes Bryan’s team. “A fact is only obvious if the observer has the spare attentional capacity to notice it.”
They also suggest that reminders, in the form of text messages or stickers, can be effective. Such gentle pushes—for instance, to take medication on schedule—can help people remember to do what they may otherwise forget, since other duties and obligations may compete for attention.
For those who design and implement antipoverty initiatives, it’s important to recognize that while scarcity can help people focus on costs and benefits, it can also cause stress that shifts attention and steals cognitive bandwidth. A big step forward would be to understand these psychological limits that poverty imposes and make some policy tweaks, write the researchers, to “substantially improve the impact they have on the poor.”
Hal Weitzman: So if poverty shapes our decisions, does that mean that the more money you have, the happier and less stressed you’ll be? Perhaps, but there are ways to improve your wellbeing without changing your financial situation. Research suggests that changing the way you consume things can help you enjoy them more. It’clear that the second ice-cream cone isn’t as good as the first but is a lot better than the fifth. And you might be happier, for example, restricting yourself to listening to one episode of the Chicago Booth Review podcast a week rather than binge-listening to the entire back catalogue.
CBR contributor John Wasik explained the research in a feature about the field of hedonomics, which studies how to maximize pleasure and which has at its heart the idea that rather than happiness being about having more, it might be about using what you have in a different way. The piece was titled, “How to Be Happy without Earning More,” and it’s read by Julie Granada Honeycutt.
Reader: Finland sits at the top of the United Nations’ 2018 World Happiness Report, which ranked more than 150 countries by their happiness level. The country that gave the world the mobile game Angry Birds scored high on all six variables that the report deems pillars of happiness: income, healthy life expectancy, social support, freedom, trust, and generosity. News reports touted Finland’s stability, its free health care and higher education, and even the saunas and metal bands for which it’s famous. But some also pointed out that Finland’s GDP per capita, at $43,000, is lower than in some other countries; GDP is $57,000 in the United States (happiness report rank: #18) and $71,000 in Norway (#2). “The Finns are good at converting wealth into wellbeing,” Meik Wiking of the Happiness Research Institute in Denmark told the Guardian.
Yet abundance does not equate to happiness, according to research—even on a longer time frame. In most developed countries, the average person is rich by the standards of a century ago. Millions more people have access to safe food, clean drinking water, and in most cases state-funded health care. And in countries with a growing middle class, millions more are now finding themselves able to purchase big-screen televisions, smart phones, and cars. But this growth in wealth hasn’t made people happier, University of Southern California’s Richard A. Easterlin first argued in 1974. In January 2016, after researchers challenged what’s now known as the Easterlin paradox, he reexamined the data and concluded that it still stood—worldwide long-term trends in happiness and real GDP per capita were largely unrelated.
People, it appears, want more than money. Some of what they want, such as free health care and living free from corruption, is determined on the social and governmental level—and helps explain why Nordic countries dominate the top spots of the worldwide happiness rankings. But there’s still hopeful news for citizens of the United Kingdom (#19), France (#23), Brazil (#28), Saudi Arabia (#33), China (#86), and elsewhere. Research suggests that it is within people’s power as individuals to achieve more happiness. Chicago Booth’s Christopher K. Hsee is a behavioral scientist focusing on what he calls hedonomics, derived from the Greek word hedone, or pleasure. Hsee views hedonomics as a counterpoint, or complement, to economics. Rather than studying how to produce more “stuff,” hedonomics studies how to extract more happiness from the existing stuff.
“Our ancestors had to work to accumulate enough to survive. But now productivity is so high, we don’t need to work so hard for survival,” Hsee says.
The pursuit of happiness
Long before Thomas Jefferson embedded “the pursuit of happiness” into the Declaration of Independence, classical philosophers such as Socrates, Aristotle, Buddha, and Confucius waxed lyrical about how to achieve happiness. In the early 20th century, Sigmund Freud posited that a driving force to seek pleasure was rooted in the id, the most animalistic part of human nature. Viktor Frankl, an Austrian neurologist and psychiatrist, argued that people want more than basic pleasure; they want meaning and purpose in their lives.
The more recent studies of happiness are both more precise and perplexing. Empirical studies have explored what makes us happy. Is it experiences? Time? Princeton’s Daniel Kahneman and Angus Deaton, both Nobel laureates, in a 2010 study find that annual income and day-to-day emotional well-being were correlated only until around $75,000. After that point, increasing income produced no more emotional well-being—leading the researchers to conclude that high income doesn’t buy happiness. “During the past 10 years we have learned many new facts about happiness. But we have also learned that the word happiness does not have a simple meaning and should not be used as if it does,” notes Kahneman in his 2011 book, Thinking, Fast and Slow. “Sometimes scientific progress leaves us more puzzled than we were before.”
Researchers now study different kinds of happiness, and their work falls into essentially two camps. One focuses on overall well-being, or life satisfaction, which can involve factors such as money, religion, politics, culture, and marriage. The other looks at shorter-term happiness derived from consuming certain things. This is the branch that includes hedonomics, as well as more general judgment and decision-making. Chicago Booth’s Richard H. Thaler, a Nobel laureate, coined the term “hedonic editing” in the 1980s, when he started to explore how people could make decisions to maximize their happiness—for example, by spreading out fun events over time but scheduling unpleasant ones back-to-back.
A 2005 paper by University of Central Florida’s Peter Hancock, Aaron A. Pepe, and Coventry University’s Lauren Murphy was one of the first to use the term “hedonomics,” which originally referred to the study of ways to interact with machines, a still-topical issue as automation and artificial intelligence merge.
Use existing resources differently
Hsee and his Chicago Booth colleague Reid Hastie redefined the term in 2008. Their version of hedonomics is premised on the idea that people don’t need more resources to be happier; they need to use existing resources differently. For example, suppose a child initially enjoys playing with wooden blocks but grows tired of them. Hedonomics suggests the child doesn’t need more blocks to be happy; she needs to change how she plays with those blocks.
If not blocks, say a person has 20 pieces of chocolate. To optimize happiness, consume them over several days, not all at once, explains University of Florida’s Yanping Tu, a recent Chicago Booth PhD graduate. The same principle applies to experiences. Instead of binge-watching a TV show, watch two episodes per day. Or better yet, apply a more sophisticated method: say you have six episodes to watch. You could watch two a day, or you could watch one on the first day, two on the second day, and three on the third day. That’s an improving sequence. Or you could do the reverse, in a decreasing sequence, by watching three at the start and winding down. “Hedonomics would suggest you take the first approach, arrange consumption in improving order,” says Tu.
Instead of optimizing their resources, many people instead seek to add resources. Hsee, who has devoted much of the past decade to researching hedonomics, says that can backfire and lead to a phenomenon known as the “hedonic treadmill.” This phrase, coined in 1971 by the late Philip Brickman of Northwestern University and the late Donald T. Campbell of Lehigh University, refers to the psychoeconomic version of a rat race.
Hsee, who grew up in China, recalls when “just having the ability to buy a cheap bicycle” in his city was a big deal. But by 2012 in China, according to the UN World Happiness Report, “virtually every urban household had, on average, a color TV, air conditioner, washing machine, and refrigerator. Almost nine in ten had a personal computer, and one in five, an automobile.” Hsee sees his friends, some now able to afford expensive cars, stuck on the hedonic treadmill as they seek to maximize their well-being.
The problem is that it takes more and more things to make people happy. In a recent study, for example, Hsee and recent Booth PhD graduate Raegan Tennant find that upgrading the screen size of an e-reader from medium to large made people happy initially, but over time the happiness faded. (See “Why a bigger house doesn’t always make you happier,” below.)
Invest in needs, not wants
The hedonic treadmill fires up because people misunderstand what will actually make them happy, research suggests. People gain more happiness when they satisfy their inherent rather than learned preferences—needs rather than wants.
Hsee and a group of researchers—University of Florida’s Yang Yang, Shanghai Jiao Tong University’s Naihe Li, and Chinese University of Hong Kong’s Luxi Shen, a graduate of Booth’s PhD Program—interviewed residents from 31 Chinese cities during one winter, asking how they felt about the temperature of their homes as well as the jewelry they owned. Home temperature was meant to signify an inherent preference, more of a biological need, whereas jewelry represented a preference developed in a cultural and social context. These learned preferences drive why someone might pick a French wine over a California wine, or a Gucci over a Coach bag.
When it came to inherent preferences, warmer room temperatures in the winter made people happier. This was true both within a given city and across cities: for example, within Tianjin, people with warmer home temperatures were happier—and on average, residents in Tianjin, where most homes were heated, were also happier than residents in Nanjing, where home heating was less prevalent.
But when it came to learned preferences, more expensive jewelry made people happier only within a given city, not across cities. Within Nanjing, people with more expensive jewelry were happier, but the average resident of Nanjing, who owned more expensive jewelry, wasn’t any happier than the average resident of Lanzhou, who owned less expensive jewelry.
“How warm the temperature is in relation to your happiness is absolute; it does not require social comparison. By contrast, how much jewelry makes you happy is relative; it requires social comparison,” Hsee says. A person is unlikely to compare herself to someone halfway across the world, but her envy and unhappiness are likely to increase if her immediate neighbors possess more than she does.
And the happiness generated by fulfilling needs lasts longer. Tu and Hsee asked people to recall a purchase—durable, and between $50 and $500—that they’d made in the previous year. Then the researchers asked how happy people had been after making the purchase, and how happy they were at the moment of the study. Regardless of which preference the purchase satisfied, inherent or learned, people’s happiness declined over time—but it was more persistent if the purchase satisfied an inherent preference.
Balancing needs with wants can take many forms. Say a person has some money to spend and already has a heated home. In that case, should she buy jewelry and handbags, or invest in something else such as a shorter commute? Some research suggests that time gained or lost in commuting is closer to a need than a want. University of Basel’s Alois Stutzer and Bruno S. Frey find that people who commuted long hours had higher incomes, but in terms of happiness, the extra money didn’t compensate for the time lost.
“Each of us has only a fixed amount of time available for family life, health activities, and work. Do we distribute our time in the way that maximizes our satisfaction? The answer, I believe, is no,” writes USC’s Easterlin. “We decide how to use our time based on a ‘money illusion,’ the belief that more money will make us happier, failing to anticipate that in regard to material conditions the internal norm on which our judgments of well-being are based will rise, not only as our own income grows, but that of others does as well. Because of the money illusion, we allocate an excessive amount of time to monetary goals, and shortchange nonpecuniary ends such as family life and health.”
Slow down
Most people obviously move to satisfy their needs first and then, after those are met, move to satisfy their wants. After all, once you have a heated home, why not want the Gucci bag? The problem is that the happiness that people get from addressing needs lasts longer than what they get from addressing wants, leading to a state of regular dissatisfaction. In this way, instead of turning off the treadmill, many people turn it up, and can find themselves in a mode that compromises their family life, health, and well-being. The person looking at his kitchen may feel the need to upgrade the granite, developing something of a countertop addiction and losing a sense of what he really wants to achieve in life.
He may also develop a tendency to overearn. As happiness from material stuff fades, people may work excessively to buy more things—even when they have more than enough money to live a comfortable life.
In a study, Hsee, University of Miami’s Jiao Zhang, Shanghai Jiao Tong University’s Cindy F. Cai, and Booth PhD candidate Shirley Zhang asked people to listen to noises such as wood being sawed. This, in the research design, was equivalent to work. Study participants had to press a button to hear the sounds, which simulated doing work people don’t particularly enjoy. Study participants earned chocolates for the length of time they worked.
After this earning period, the participants entered a consumption period, during which they could eat all of the candy they’d just earned. They were told that they weren’t allowed to take any chocolates home, however— which created essentially a version of life where people can’t take earnings with them to the afterlife or pass them down to their children, Hsee says.
Many participants earned more chocolates than they could eat in the time allotted, particularly if they had been designated high earners and had to press the noise button just 20 times (as opposed to 120 times) to earn a piece. This group earned almost 11 chocolates on average but ate just four of them. After four, they’d generally eaten all they wanted, so they literally left the remaining chocolates on the table upon leaving.
“Using this paradigm, we found that individuals do overearn, even at the cost of happiness, and that overearning is a result of mindless accumulation—a tendency to work and earn until feeling tired rather than until having enough,” the researchers write. However, when participants were told that they could continue to work but would not earn more chocolates, they stopped sooner and felt happier, the research finds, suggesting that imposing an earning cap could reduce overworking and increase happiness. Hsee sees a parallel in real life, where productivity has enabled many people to work less for roughly equal pay, and yet they don’t take advantage of this and instead continue to work rather than relax.
Promote curiosity
Curiosity can also help, as people find pleasure in discovering enlightening detours and unexpected adventures. When they stop and ponder something new, or take on projects that increase their knowledge, this can facilitate greater happiness.
Hsee says that research with University of Wisconsin-Madison’s Bowen Ruan and Zoe Y. Lu reveals a nuance in the relationship between curiosity and happiness. In one study, people presented with new, interesting facts reported higher levels of satisfaction if they were asked questions but not immediately provided the answers. The process of discovery proved important.
One curiosity experiment had two set-ups. In the first set-up, researchers told study participants that only humans and certain whales experience menopause. In the second, the researchers asked which animals the participants thought were affected by menopause, prompting the participants to think before receiving the answer. The people in the latter situation reported higher levels of satisfaction, apparently happiest when curiosity was stoked and soon resolved.
Hsee says he applies this finding in his teaching by asking students questions and giving them time to ponder before supplying answers. Children also benefit from learning to appreciate the power of curiosity, he says, suggesting individuals can put this finding to work for them, for example by reading questions about art before visiting a museum, or by reading questions about a new city before heading there. In this way, hedonomics teaches, tourists can extract happiness from a vacation to, say, Paris without having to visit more cities.
Limit your choices
According to traditional economic theory, more choices are always preferable to less. A person faced with too many choices can always turn down the ones she doesn’t want. But this is a hot topic in decision-making research, as behavioral scientists have established that sometimes people prefer fewer choices. And hedonomics indicates that more choices may lower happiness and rev up the hedonic treadmill.
London Business School’s Simona Botti and Hsee ran a series of experi-ments in which they offered a number of people in a group more choices, some fewer, and some the chance to state which option they’d prefer. For example, in one experiment, they had people imagine having $10,000 to invest in a certificate of deposit and asked them to find the best CD available to them, any of which would pay between 3.01 percent and 4 percent. One group paid $7 for one set of three randomly generated options. A second group did the same, but was also given the option of spending another $7 for three more options, and so on, in a bid to find the best interest rate. A third group heard about both options, and then said which they’d prefer and predicted which would generate the best return.
The group told of both options preferred the freedom to have more choices, which they predicted would generate a better return. But in fact, people with more choices oversearched and ultimately earned less than people whose choices were restricted. There was a clear cost for more choice, $7, but people undervalued it. And the researchers find the same pattern in other experiments.
The amount of time people spend making purchasing decisions may lead to “faulty decisions and undesirable outcomes,” Botti and Hsee conclude. More choices led to worse outcomes, and by extension, to lower happiness. When it comes to choice—as industrial designer Peter Behrens said, and his protégé architect Ludwig Mies van der Rohe often repeated—less is more.
Lessons for policy makers
The findings from hedonomics will have increasing importance as countries around the globe get richer. In many developing countries, the middle class is growing, which means millions more people will find themselves choosing between different types of televisions and countertops—and wines, purses, and jewelry—and looking for happiness in this newly acquired stuff.
In the US and other developed countries, where the middle class is shrinking, the lessons of hedonomics could be helpful for policy makers planning for demographic and workforce changes, Hsee says. The baby boom generation is aging out of the workforce, and up to half of today’s jobs may be automated in coming decades, according to a 2016 White House study. This transformation could leave a lot of people searching for work that might not exist, making potentially millions of people idle. Some economists, as well as business leaders, have expressed support for the idea of giving people a universal basic income—guaranteeing income of a certain amount to people who may find themselves unemployed and unemployable.
In a strict sense, this may not seem like a problem that can be addressed by hedonomics, which is about extracting the most happiness from a set amount of resources. A universal basic income could make people happier by making sure they can meet their basic needs.
But Hsee sees large numbers of idle people as a problem with political and social consequences—and essentially another problem that involves getting more happiness from one set of blocks. “You can make idle people happy by giving them a reason to ‘play with the existing blocks’ without accumulating more blocks,” he says, proposing the government consider programs that give people tasks to do, not unlike the Works Progress Administration of the New Deal era, which put people who were unemployed after the Great Depression back to work. Governments, he says, may need to find ways to engage people with activities.
Whatever the policy implications may be, and whatever form they could take, the research confirms the homespun wisdom that more money doesn’t necessarily buy more happiness. Instead, Hsee says, cherish what you have and make the best use of it.
Hal Weitzman: That’s it for this episode of the Chicago Booth Review Podcast. It was produced by Josh Stunkel, and I’m Hal Weitzman. If you enjoyed this episode, please subscribe and please do leave us a 5-star review. And for more insights from Chicago Booth faculty, visit us online at chicagobooth.edu/review. Thanks for listening—until next time.
Chicago Booth’s Jean-Pierre Dubé explains how retailers use hidden fees to obfuscate prices and avoid transparency.
Hidden Fees, Drip Pricing, and ShrinkflationPolicies marginalize poorer consumers and consumers with niche tastes, disadvantaging small businesses.
Data Privacy Is for the PrivilegedHow can you make 2024 that exceptional year when you actually keep your New Year’s resolutions? In this episode, we get advice from Chicago Booth’s Ayelet Fishbach.
How to Keep Your New Year’s ResolutionsYour Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.