How much money to make you happy?

Who says money can’t buy you happiness? Economists Jonathan Gardner and Andrew Oswald report that winners of a medium-sized prize of between £1000 and £120,000 on Britain’s National Lottery subsequently enjoyed a significant improvement in their psychological well-being compared with others who had only a small win, or no win at all. However, the benefit wasn’t instantaneous, rather it took approximately two years to kick in – probably, the researchers surmised, because it was the act of spending the winnings, rather than the winning itself, that had a positive effect.

Gardner and Oswald made these observations after studying data collected as part of the British Household Panel Survey, a project based on yearly interviews with the same sample of over 10,000 people, conducted since 1991. The researchers had access to the participants’ lottery winnings and to their annual scores on a measure of psychological well-being called the ‘General Health Questionnaire’, which features items like “Have you recently felt under constant strain?” or “Have you recently been feeling unhappy and depressed?”.

One hundred and sixteen participants had had a win of over £1000, and changes in their psychological well-being were compared with 2943 winners of prizes smaller than £1000, and with 9677 people who had no win at all.

There were no well-being differences between groups in the year after a win. But two years after a win, those participants who’d won a medium-sized prize showed a positive change in psychological well-being of 1.22 points compared with two years prior to their win. The small prize winners and non-winners, by contrast, actually showed a drop in psychological well-being of 0.18 points over the same time period, so there was a relative difference between the groups of 1.4 points.

But what do these point differences mean in real life? Gardner and Oswald said earlier research had found being widowed was associated with an average drop in well-being of 5 points on the same measure, leading them to conclude the 1.4 point positive change enjoyed by medium-sized winners was worth writing home about – or in their words: “economically significant and not merely statistically significant”.

Gardner, J. & Oswald, A.J. (2006). Money and mental well-being: A longitudinal study of medium-sized lottery wins. Journal of Health Economics, In Press.

Link to related study by Nobel-prize winner Daniel Kahneman.
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