(You can find the complete paper on the GWWC website)

Cross-sectional studies consistently show that at any given time, within any given country, income is positively correlated with happiness (see [Diener & Biswas-Diener 2002, 122-127] for overview and discussion). Thus, the World Value Survey II found the percentage of respondents in the UK reporting above neutral life-satisfaction to be 19% higher for high income groups compared to low income groups; in France the difference was 29%, in the Netherlands it was 6%, and the global average was 17%¹…

What, if anything, can we conclude from this regarding the probable effects of giving away 10% of our income? We might choose to think of this as equivalent to simply exchanging our level of happiness for that attributed by a cross-sectional survey to someone within our country whose income is 10% lower than our own. Since we know that income is positively correlated with happiness in cross-sectional surveys, we should then expect that the effect of donating our income will be to decrease happiness.

However, we must be careful in inferring causation from correlation. The existence of a positive correlation between happiness and income might be partly due, for example, to the influence of happiness on income: people of a cheerful disposition might end up wealthier than others. In fact, an effect of this kind exists². Similarly, the correlation between income and happiness might be partly due to any number of third variables that cause both higher income and higher happiness. And, in fact, the correlation between income and happiness is weakened if one controls for variables such as education and unemployment³. 

On top of this, it might be argued that the available data inflates the size of the correlation between income and happiness. In surveys of this correlation, wellbeing is almost always measured by asking subjects to provide global reports of life-satisfaction: for example, they may be asked, “All things considered, how satisfied are you with your life as a whole these days?” However, there exists another technique for measuring happiness, experiential sampling, where subjects are asked to report their instantaneous feelings of happiness or unhappiness at several points over an extended period of time. It has been argued that experiential sampling provides a superior method of measuring happiness, because it overcomes the biases and imperfections associated with the cognitive capacities required to provide an accurate estimate of the happiness associated with ones life as a whole^4,5. The choice of method is of importance, because the correlation between income and happiness is weakened by the replacement of such experiential measures for global self-report measures^6,7. If experiential sampling provides a more objective measure of wellbeing, then money buys less happiness than most studies indicate.

Since giving away 10% of ones income involves only the loss of money and no sacrifice of ones educational achievement or sunny disposition, giving away 10% of ones income will not produce as great a drop in happiness as would exchanging ones level of wellbeing for that of a typical person earning 10% less, as people who earn different amounts of money typically differ in other ways which are relevant to happiness. On top of this, it must be emphasized that the data shows the correlation between income and happiness to be small, and significantly smaller than people estimate⁸. Based on Helliwell⁹, Layard¹⁰ calculates that “[a] fall in income by one third (holding national income constant) causes a fall in happiness of 2 points on the scale of happiness (from 10 to 100).” (65, my emphasis) The modest size of the correlation ensures that the effects of income on happiness are dwarfed by other non-pecuniary factors. On one analysis of their data, Ball & Chernova¹¹ calculate that for the median single individual, the happiness boost produced by marriage is matched only by a 767% increase in absolute income, or by an increase in relative income from the 50th to the 88th percentile; the boost associated with moving from a health rating of 3 to 4 (when health is scored from 1 to 5) is matched only by a 6,531% increase in absolute income, or by a move from the 50th to the 100th percentile in relative income.

Supposing, then, that we adopt the approach suggested above and think of donating 10% of our income as equivalent to simply exchanging our level of happiness for that attributed by a cross-sectional survey to someone within our country whose income is 10% lower than our own (keeping all other variables constant), we may conclude that this should produce a very small reduction in personal happiness.

However, the methodology relied upon here is open to challenge. We might ask why we should think of giving away 10% of our income as equivalent to earning 10% less? After all, that assumption is literally false: we will not have a lower income, but one that is spent differently…

To determine the probable effects of donating our income we should examine empirical studies that address the correlation between different kinds of spending and happiness, rather than the correlation between income and happiness.

Unfortunately, relatively little research has explored this issue, though it has gained increasing attention of late (see Dunn, Gilbert, & Wilson in press for an overview). Certain important results have already been established: for example, spending money on experiences, such as holiday trips, typically yields greater happiness than spending money on material goods¹². There is also evidence to indicate that benefitting others might benefits us more than spending money on ourselves.

Imagine the following scenario. You are a participant in a psychological experiment: you are given an envelope containing a small sum of money, which you are asked to spend within 24 hours. The experimenter can assign you to one of conditions: she can require that you spend the money on yourself (paying a bill or buying yourself a treat) or she can require that you spend the money on others (buying a present for someone or donating the money to charity). Which condition do you suppose would bring the greatest happiness: spending the windfall on yourself or in an altruistic fashion?

If you are like the typical participant in an experiment of this kind, conducted by Dunn, Aknin, & Norton¹³, you believe that spending on yourself brings greater happiness. If you are of this opinion, your affective forecast is mistaken: the experimenters found that subjects in the prosocial spending condition reported greater happiness after spending their windfall than did those in the personal spending condition. This was not an isolated result. Dunn et al. also conducted a longitudinal study of 16 employees at a Boston- based company who received a profit-sharing bonus, finding that those who devoted more of their bonus to prosocial spending experienced greater happiness as a result of spending their windfall; a cross-sectional study of a representative sample of Americans also found greater prosocial spending correlated with significantly greater happiness, while personal spending turned out to be unrelated to happiness.

Aknin et al.¹⁴ examined survey-data from 136 countries gathered by the Gallup Organization, to see whether ratings of subjective wellbeing were positively correlated with donating to charity. Controlling for household income, it was found, in 122 of the 136 countries, that there is a positive correlation between subjective wellbeing and answering Yes to the question Have you donated money to charity in the last month? On average, it was found, “donating to charity has a similar relationship to S[ubjective]W[well]B[eing] as a doubling of household income.”

Of course, we must be cautious in extrapolating from these results to the conclusion that donating 10% of our income to charity will be better for us than would be keeping this money for ourselves. The Gallup data did not assess the amount given to charity, and is correlational. The sums involved in the experiment described above are small. The experiment also involved windfall gains, such that subjects were not using money that they had already planned to spend on themselves. Moreover, insofar as the effects of donating 10% of our income might be expected to resemble those achieved for the prosocial spenders in the experiment described above, it is important that this 10% be taken from spending that would otherwise have gone on ourselves: the experiment does not support the view that giving money to charity is better than not giving, if the money donated would instead have been spent on presents for friends or family. Nonetheless, these results lend credence to the idea that giving money to charity can be a source of life-satisfaction that outweighs whatever minor frustrations we might experience from having less money to spend for our own purposes. Anecdotally, this idea is borne out by the testimony of members of Giving What We Can. Far from feeling like a sacrifice, joining Giving What We Can tends to be a very positive experience, as you become part of a global community of like-minded individuals and gain deep satisfaction from the knowledge that you are helping others and making a positive impact on the world.

It must be conceded that we have not been able to arrive at any secure verdict regarding the expected effects of donating 10% of our income to charity. Nonetheless, we have uncovered good evidence to support the view that this will involve no great sacrifice on our behalf, and certainly less sacrifice than we initially expected…

Ultimately, of course, the important thing is to help others. Given the extraordinary benefits that we can achieve for individuals living in poverty, it is something we should be doing even if did mean a real sacrifice. But it is important to know that it does not, for we can then put to rest whatever self-interested doubts might be holding us back.

Endnotes:

1. [Diener & Biswas-Diener 2002, 125]

2. [Diener & Biswas-Diener 2002, 134-135]

3. [Easterlin 2001, 468]; see [Diener & Biswas-Diener 2002, 128] for general discussion

4. [Kahneman 1999]

5. [Stone et al. 1999]

6. [Kahneman et al. 2006]

7. [Diener et al. 2010]

8. [Aknin et al. 2009]

9. [Helliwell 2003]

10. [Layard 2006]

11. [Ball & Chernova 2008]

12. [Van Boven & Gilovich 2003]

13. [Dunn et al. 2008]

14. [Aknin et al. 2010]

References:

[Aknin et al. 2009] Aknin, Lara, Michael Norton, & Elizabeth Dunn (2009). “From wealth to well-being? Money matters, but less than people think", The Journal of Positive Psychology 4, 523-527.

[Aknin et al. 2010] Aknin, Lara, Christopher P. Barrington-Leigh, Elizabeth W. Dunn, John F. Helliwell, Robert Biswas-Diener, Imelda Kemeza, Paul Nyende, Claire Ashton-James, Michael I. Norton (2010). “Prosocial Spending and Well-Being: Cross-Cultural Evidence for a Psychological Universal." Harvard Business School Working Paper 11-038.

[Ball & Chernova 2008] Ball, Richard & Chernova, Kateryna (2008). “Absolute Income,Relative Income, and Happiness", Social Indicators Research 88, 497- 529.

[Diener & Biswas-Diener 2002] Diener, Ed & Biswas-Diener, Robert (2002). “Will Money Increase Subjective Well-Being? A Literature Review and Guide to Needed Research", Social Indicators Research 57, 119-169.

[Diener et al. 2010] Diener, Ed, Weiting Ng, James Harter, & Raksha Arora (2010). “Wealth and Happiness Across the World: Material Prosperity Predicts Life Evaluation, Whereas Psychosocial Prosperity Predicts Positive Feeling", Journal of Personality and Social Psychology 99. 52-61.

[Dunn et al. 2008] Dunn, Elizabeth, Lara Aknin, & Michael Norton (2008). “Spending Money on Others Promotes Happiness", Science 319, 1687-1688.

[Easterlin 2001] Easterlin, Richard (2001). “Income and Happiness: Towards a Unified Theory", The Economic Journal 111, 465-484.

[Helliwell 2003] Helliwell, John (2003). “How's life? Combining individual and national variables to explain subjective well-being", Economic Modelling 20, 331-360.

[Kahneman 1999] Kahneman, Daniel (1999). “Objective Happiness" in Daniel Kahneman, Ed Diener, & Norbert Schwarz, eds. Well-Being: The Foundations of Hedonic Psychology. New York, NY: Russell Sage, 1999, 3-25.

[Kahneman et al. 2006] Kahneman, Daniel, Alan Krueger, David Schkade, Norbert Schwarz, & Arthur Stone (2006). “Would You Be Happier If You Were Richer? A Focusing Illusion", Science 312, 1908-1910.

[Layard 2006] Layard, Richard (2006). Happiness: Lessons From a New Science. London: Penguin.

[Stone et al. 1999] Stone, Arthur, Saul Shiman, & Marten deVries (1999). “Ecological Momentary Assessment" in Daniel Kahneman, Ed Diener, & Norbert Schwarz, eds. Well-Being: The Foundations of Hedonic Psychology. New York, NY: Russell Sage, 1999, 26-39.

[Van Boven & Gilovich 2003] Van Boven, L., & Gilovich, T. (2003). “To do or to have? That is the question”, Journal of personality and social psychology, 85(6), 1193.