Summary

Does happiness depend on what one earns or what one spends? Income is typically found to have small beneficial effects on well-being. However, economic theory suggests that well-being is conferred not by income but by consumption (i.e., spending on goods and services), and a person’s level of consumption may differ greatly from their level of income due to saving behavior and taxation. Moreover, research within consumer psychology has established relationships between people’s spending in specific categories and their well-being. Here we show for the first time using panel data that changes in life satisfaction are associated with changes in consumption, not changes in income. We also find some evidence that increased conspicuous consumption is more strongly associated with improved well-being than is increased nonconspicuous consumption.

Details: Social Psychological and Personality Science. Online April 2019

Authors:   Gordon Brown and John Gathergood