Personal Health

The Fascinating Scientific Reason Why "Money Doesn't Buy Happiness"

No matter how you turn it, research says once your basic needs are taken care of, money and other rewards don’t make you happier.

The Misconception: There is nothing better in the world than getting paid to do what you love.

The Truth: Getting paid for doing what you already enjoy will sometimes cause your love for the task to wane because you attribute your motivation as coming from the reward, not your internal feelings. 

Money isn’t everything. Money can’t buy happiness. Don’t live someone else’s dream. Figure out what you love and then figure out how to get paid doing it.

Maxims like these often find their way into your social media; they arrive in your electronic mailbox at the ends of dense chains of forwards. They bubble up from the collective sighs of well-paid boredom around the world and get routinely polished for presentation in graduation speeches and church sermons.

Money, fame, and prestige – they dangle just outside your reach it seems, encouraging you to lean farther and farther over the edge, to study longer and longer, to work harder and harder. When someone reminds you that acquiring currency while ignoring all else shouldn’t be your primary goal in life, it feels good. You retweet it. You post it on your wall. You forward it, and then you go back to work.

If only science had something concrete to say about the whole thing, you know? All these living greeting cards dispensing wisdom are great and all, but what about really putting money to the test? Does money buy happiness? In 2010, scientists published the results of a study looking into that very question.

The research by Daniel Kahneman and Angus Deaton, published in the Proceedings of the National Academy of Sciences, analyzed the lives and incomes of nearly half-a-million randomly selected U.S. citizens. They dug through the subjects’ lives searching for indicators of something psychologists call “emotional well being,” a clinical term for how often you feel peaks and valleys like “joy, stress, sadness, anger and affection” and to what degree you feel those things daily. In other words, they measured how happy or sad people were over time compared to how much cash they brought home. They did this by checking if the subjects were consistently able to experience the richness of existence, by whether they were tasting the poetic marrow of life.

The researchers discovered money is indeed a major factor in day-to-day happiness. No surprise there. You need to make a certain amount, on average, to be able to afford food, shelter, clothing, entertainment and the occasional Apple product, but what spun top hats around the country was their finding that beyond a certain point your happiness levels off. The happiness money offers doesn’t keep getting more and more potent – it plateaus. The research showed that a lack of money brings unhappiness, but an overabundance does not have the opposite effect.

According to the research, in modern America the average income required to be happy day-to-day, to experience “emotional well being” is about $75,000 a year. According to the researchers, past that point adding more to your income “does nothing for happiness, enjoyment, sadness, or stress.” A person who makes, on average, $250,000 a year has no greater emotional well-being, no extra day-to-day happiness, than a person making $75,000 a year. In Mississippi it is a bit less, in Chicago a bit more, but the point is there is evidence for the existence of a financiohappiness ceiling. The super-wealthy may believe they are happier, and you may agree, but you both share a delusion.

If you don’t already have it, money can improve your life and make you happier, but once you have enough to go to Red Lobster on Tuesday night without worrying about paying the water bill that month, you’re good to go. Or, as Henry David Thoreau once said, “A man is rich in proportion to the number of things which he can afford to let alone.” In the modern United States the ability to let most things alone, according to Kahneman and Deaton’s research, costs about $75,000 a year.

If you find that hard to believe, you aren’t alone. A study in 2011 at Cornell asked Americans which they would rather have, more money or more sleep. Most people said more money. In a choice between either $80,000 a year, normal work hours, and about eight hours of sleep a night versus $140,000 a year, routine overtime, and six hours of nightly dreams – the majority of people went with the cash. It’s unfortunate, because although it looks good on paper and feels right in your gut, the research has never agreed. No matter how you turn it, the science says once your basic needs are taken care of, money and other rewards don’t make you happier, and you can appreciate why after examining a psychological jewel called the overjustification effect. To understand it, we must travel to 1973 when a group of psychologists poisoned a few children’s love of drawing in the name of science.

Throughout the 20th century, as psychology came into its own as a scientific discipline, many psychologists emerged from the halls of academia and ascended to the rank of celebrity after delivering open-palmed scientific slaps to the face of mankind. Sigmund Freud got people talking about the unconscious and the malleable, hidden world of desires and fears. Carl Jung put the ideas of archetypes, introversion, and extroversion into our vocabulary. Abraham Maslow gave us a hierarchy of needs including hugs and sex. Timothy Leary fed Harvard students psychedelic mushrooms and advocated that an entire generation should use LSD to “turn on, tune in, and drop out.” There are many more, but in the 1970s, B.F. Skinner was the rock star of psychology.

Skinner and his boxes made the cover of Time magazine in 1971 underneath the ominous proclamation, “We Can’t Afford Freedom.” His research into behaviorism had made its way into the public consciousness, and he was intent on using his celebrity to convince all of humanity there was no such thing as free will. You’ve seen his findings in practice. The Supernanny and The Dog Whisperer reward desired behavior and either punish or ignore undesired behavior – and they get impressive results. Skinner could make birds do figure eights on his command, or train them to pilot guided missiles. He invented climate-controlled baby boxes in which infants never cried. He created teaching machines that still influence user interfaces today. But, he also scared a romantic generation of freedom seekers into thinking freedom might be an illusion.

Skinner said all human thoughts and behaviors were just reactions to stimuli – conditioned responses. To believe as Skinner did is to believe everything you do is part of seeking a reward or avoiding a punishment. Your entire life is just a stack of evolutionarily selected against quirks and desires seasoned with programmed interests and fears. There is no self. There is no one in control. Those things are illusions, side effects of a complex nervous system observing its own actions and cognitions. In light of this, Skinner advocated we build a society through setting goals and then condition people toward those goals through positive reinforcement. Skinner didn’t trust human beings not to be lazy, greedy, and violent. Humans, he said, were inclined to seek and reinforce status through institutions, class warfare, and bloodshed. People can’t be trusted with freedom, he told the world. Psychology could instead design systems to condition people toward positive goals that ensure the best possible quality of life for all.

As you might imagine, the proclamation humans have no soul, or at least no special spark, caused a great deal of mental indigestion. Many psychologists resisted the idea that you are nothing more than chemical reactions on top of physical laws playing themselves out no differently than a rock slide crashing down the side of a mountain or a tree converting sunlight and carbon dioxide into wood. Skinner claimed what goes on inside your head is irrelevant, that the environment, the stuff outside your skull determines behavior, thoughts, emotions, beliefs and so on. It was a bold and terrifying claim to many, so science set about the task of picking it apart.

Among those who wanted to know if the mind was just a pile of reactions to rewards and punishments were psychologists Mark Lepper, Daniel Greene and Richard Nisbett. They wondered if thinking about thinking played a bigger role than the behaviorists suggested. In their book, The Hidden Costs of Reward, they detail one experiment in particular which helped pull psychology out from under what they called Skinner’s “long shadow.”

In 1973, Lepper, Greene and Nisbett met with teachers of a preschool class, the sort that generates a steady output of macaroni art and paper-bag vests. They arranged for the children to have a period of free time in which the tots could choose from a variety of different fun activities. Meanwhile, the psychologists would watch from behind a one-way mirror and take notes. The teachers agreed, and the psychologists watched. To proceed, they needed children with a natural affinity for art. So as the kids played, the scientists searched for the ones who gravitated toward drawing and coloring activities. Once they identified the artists of the group, the scientists watched them during free time and measured their participation and interest in drawing for later comparison.

They then divided the children into three groups. They offered Group A a glittering certificate of awesomeness if the artists drew during the next fun time. They offered Group B nothing, but if the kids in Group B happened to draw they received an unexpected certificate of awesomeness identical to the one received by Group A. The experimenters told Group C nothing ahead of time, and later the scientists didn’t award a prize if those children went for the colored pencils and markers. The scientists then watched to see how the kids performed during a series of playtimes over three days. They awarded the prizes, stopped observations, and waited two weeks. When they returned, the researchers watched as the children faced the same the choice as before the experiment began. Three groups, three experiences, many fun activities – how do you think their feelings changed? 

Well, Group B and Group C didn’t change at all. They went to the art supplies and created monsters and mountains and houses with curly-cue smoke streams crawling out of rectangular chimneys with just as much joy as they had before they met the psychologists. Group A, though, did not. They were different people now. The children in Group A “spent significantly less time” drawing than did the others, and they “showed a significant decrease in interest in the activity” as compared to before the experiment. Why?

The children in Group A were swept up, overpowered, their joy perverted by the overjustification effect. The story they told themselves wasn’t the same story the other groups were telling. That’s how the effect works.

Self-perception theory says you observe your own behavior and then, after the fact, make up a story to explain it. That story is sometimes close to the truth, and sometimes it is just something nice that makes you feel better about being a person. For instance, researchers at Stanford University once divided students into two groups. One received a small cash payment for turning wooden knobs round and round for an hour. The other group received a generous payment for the same task. After the hour, a researcher asked students in each group to tell the next person after them who was about to perform the same boring task that turning knobs was fun and interesting. After that, everyone filled out a survey in which they were asked to say how they truly felt. The people paid a pittance reported the study was a blast. The people paid well reported it was awful. Subjects in both groups lied to the person after them, but the people paid well had a justification, an extrinsic reward to fall back on. The other group had no safety net, no outside justification, so they invented one inside. To keep from feeling icky, they found solace in an internal justification – they thought, “you know, it really was fun when you think about.” That’s called the insufficient justification effect, the yang to overjustification’s yin. In telling themselves the story, the only difference was the size of the reward and whether or not they felt extrinsically or intrinsically motivated. You are driven at the fundamental level in most everything you choose to do by either intrinsic or extrinsic goals.

Intrinsic motivations come from within. As Daniel Pink explained in his excellent book, Drive, those motivations often include mastery, autonomy, and purpose. There are some things you do just because they fulfill you, or they make you feel like you are becoming better at a task, or that you are a master of your destiny, or that you play a role in the grand scheme of things, or that you are helping society in some way. Intrinsic rewards demonstrate to yourself and others the value of being you. They are blurry and difficult to quantify. Charted on a graph, they form long slopes stretching into infinity. You strive to become an amazing cellist, or you volunteer in the campaign of an inspiring politician, or you build the starship Enterprise in Minecraft.

Extrinsic motivations come from without. They are tangible baubles handed over for tangible deeds. They usually exist outside of you before you begin a task. These sorts of motivations include money, prizes and grades, or in the case of punishment, the promise of losing something you like or gaining something you do not. Extrinsic motivations are easy to quantify, and can be demonstrated in bar graphs or tallied on a calculator. You work a double shift for the overtime pay so you can make rent. You put in the hours to become a doctor hoping your father will finally deliver the praise for which you long. You say no to the cheesecake so you can fit into those pants at the Christmas party. If you can admit to yourself that the reward is the only reason you are doing what you are doing – the situps, the spreadsheet, the speed limit – it is probably extrinsic.

Whether a reward is intrinsic or extrinsic helps determine the setting of your narrative – the marketplace or the heart. As Dan Ariely writes in his book, Predictably Irrational, you tend to unconsciously evaluate your behavior and that of others in terms of social norms or market norms. Helping a friend move for free doesn’t feel the same as helping a friend move for $50. It feels wonderful to slip into the same bed with your date after getting to know them and staying up one night making key lime cupcakes and talking about the differences and similarities between Breaking Bad and The Wire, but if after all of that the other person tosses you a $100 bill and says, “Thanks, that was awesome,” you will feel crushed by the terrible weight of market norms. Payments in terms of social norms are intrinsic, and thus your narrative remains impervious to the overjustification effect. Those sorts of payments come as praise and respect, a feeling of mastery or camaraderie or love. Payments in terms of market norms are extrinsic, and your story becomes vulnerable to overjustification. Marketplace payments come as something measurable, and in turn they make your motivation measurable when before it was nebulous, up for interpretation and easy to rationalize.

The deal the children struck with the experimenters ruined their love of art during playtime, not because they received a reward. After all, Group B got the same reward and kept their desire to draw. No, it wasn’t the prize but the story they told themselves about why they chose what they chose, why they did what they did. During the experiment, Group C thought, “I just drew this picture because I love to draw!” Group B thought, “I just got rewarded for doing something I love to do!” Group A thought, “I just drew this to win an award!” When all three groups were faced with the same activity, Group A was faced with a metacognition, a question, a burden unknown to the other groups. The scientists in the knob-turning study and the child artists study showed Skinner’s view was too narrow. Thinking about thinking changes things. Extrinsic rewards can steal your narrative.

As Lepper, Greene and Nisbett wrote, “engagement in an activity of initial interest under conditions that make salient to the person the instrumentality of engagement in that activity as a means to some ulterior end may lead to decrements in subsequent, intrinsic interest in the activity.” In other words, if you are offered a reward to do something you love and then agree, you will later question whether you continue to do it for love or for the reward.

In 1980, David Rosenfield, Robert Folger and Harold Adelman at Southern Methodist University revealed a way you can defeat the overjustification effect. Seek employers who dole out reward – paychecks, bonuses, promotions, etc. – based not on quotas or task completions but instead based on competence. They ran an experiment in which they told subjects the goal was to find fun and interesting ways to improve vocabulary skills in schools. They placed participants in two categories and two groups per category. In one category, subjects would be paid for being good at their task. In the other category, the subjects would be paid for completing a task. The subjects received 26 dice with letters on their faces instead of dots and a stack of index cards each with 13 random letters. The subjects hit a timer and used their dice to make words from the letters on the cards. Once they had used nine letters or spent a minute-and-a-half trying, they moved on to the next index card and kept repeating until the experiment ended. It was difficult but fun, and as the players kept going they started to improve in their abilities.

In the payment for competence category, Group A was told they were being payed based on how well they did compared to the average score. In Group B, the subjects were told the same thing, but there was no mention of any reward. In the payment for completion category, the scientists told Group C each completed puzzle would increase their payout, and Group D was told they would be paid by the hour.

After the games, the experimenters pretended to tally up the subjects’ scores and showed Groups A and B how well they did. No matter how they actually performed, the scientists told half of Groups A and B they did poorly and half they were amazing at the game. Groups C and D, the ones who were paid for completions, were also split. Half got low pay and half high pay. The subjects then filled out a questionnaire and sat alone in the room with the dice and cards for three minutes. During that alone time the real study began. The scientists wanted to see who would keep playing the game for fun and for how long.

The people in Groups A and B, the ones who were paid for being better than average, they picked up the game and played it for over two minutes, but slightly less than that if they were told they weren’t that good. The people in groups C and D, the ones paid for completions, didn’t play it for fun for as long as did the people in the competency groups, and they tended to play longer the less they were paid.

The results of the study suggested when you get rewarded based on how well you perform a task, as long as those reasons are made perfectly clear, rewards will generate that electric exuberance of intrinsic validation, and the higher the reward, the better the feeling and the more likely you will try harder in the future. On the other hand, if you are getting rewarded just for being a warm body, no matter how well you do your job, no matter what you achieve, the electric feeling is absent. In those conditions greater rewards don’t lead to more output, don’t encourage you to strive for greatness. Overall, the study suggested rewards don’t have motivational power unless they make you feel competent. Money alone doesn’t do that. With money, when you explain to yourself why you worked so hard, all you can come up with is, “to get paid.” You come to believe you are being coerced, paid off, bought out. In the absence of what the scientists called “competency feedback” there is no story to tell yourself that paints you as a badass. Quotas and overtime and hourly pay don’t offer such indications of competency. Bonuses based on a reaching a specific number of completions or reaching a quantified goal make you feel like a machine.

If you pay people to complete puzzles instead of paying them for being smart, they lose interest in the game. If you pay children to draw, fun becomes work. Payment on top of compliments and other praise and feeling good about personal achievement are powerful motivators, but only if they are unexpected. Only then can you continue to tell the story that keeps you going; only then can you still explain your motivation as coming from within.

Consider the story you tell yourself about why you do what you do for a living. How vulnerable is that tale to these effects?

Maybe your story goes like this: Work is just a means to an end. You go to work; you get paid. You exchange effort for survival tokens and the occasional steampunk thong from Etsy. Work is not fun. Work pays bills. Fun happens at places that are not work. Your story is in no danger if that’s how you see things. In an environment like that Skinner’s assumptions hold true, you will only work as hard as is necessary to keep getting paychecks. If offered greater rewards, you’ll work harder for them.

Maybe your story goes like this though: I love what I do. It changes lives. It makes the world a better place. I am slowly becoming a master in my field, and I get to choose how I solve problems. My bosses value my efforts, depend on me, and offer praise. In that scenario, rewards just get in the way of your job. As Kahneman’s and Deaton’s study about happiness showed, once you earn enough to be happy day-to-day, motivation must come from something else. As Kahneman and Deaton’s research into happiness and money showed, the only material reward worth seeking once you have a bed, running water and access to microwave popcorn, are tributes, symbols to all of your merit, stuff that demonstrates your effectance to yourself and others. Ranks, degrees, gold stars, trophies, Nobel Prizes and Academy Awards – these are shorthand indicators of your competence. Those rewards amplify your internal motivations; they build your self-esteem and strengthen your feelings of self-efficacy. They show you’ve leveled up in the real world. Achievement unlocked. They help you construct a personal narrative you enjoy telling.

The overjustification effect threatens your fragile narratives, especially if you haven’t figured out what to do with your life. You run the risk of seeing your behavior as motivated by profit instead of interest if you agree to get paid for something you would probably do for free. Conditioning will not only fail, it will pollute you. You run the risk of believing the reward, not your passion, was responsible for your effort, and in the future it will be a challenge to generate enthusiasm. It becomes more and more difficult to look back on your actions and describe them in terms of internal motivations. The thing you love can become drudgery if that which can’t be measured is transmuted into something you can plug into TurboTax. 

David McRaney is a journalist who loves psychology, technology and the Internet.
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