Does money really make you happy: An economic approach

A couple of weeks ago when I was out shopping with a friend, after informing him that I had never bought a scratch card from the shop he persuaded me to buy one to tick it off the list of things to do in life. It cost a whole £2, much to my amazement I won a walloping £5, this short term ‘victory’ delighted me and definitely brought me a short term utility boost. It’s amazing the affect that winning can have on someone in the short term, but what about the longer term?

We always hear stories about lottery winners who say they wish they’d never won or about how it made their life a misery and all their friends abandoned them etc e.g.

So what’s the truth behind it all….is this the exception or the rule?

Does money really make you happy?

After a bit of research I found an excellent paper by Gardner and Oswald (2007) in the Journal of Health Economics, which you can read here This longitudinal study examines medium sized lottery winners who won between £1000 and £120,000 in 1998 British pounds with a sample of n = 137. There were two control groups, small winners and people who didn’t win. Although this is a relatively small sample and results should therefore be taken with caution I would argue it is large enough to draw reasonable conclusions. Mental well being was measured using the general health questionnaire (GHQ) which is a measure of psychological strain or stress. When followed up 2 years after winning… compared to the control groups, medium sized lottery winners using the GHQ had a 1.4 GHQ increase. This probably means nothing to the majority. To give some perspective the impact of being widowed (the worst observable impact on GHQ) leads to a 5 GHQ point decrease. Given this, it is clear that this is not just a statistically significant increase in mental well being but a substantial increase in mental well being.

So what conclusions can we draw from this?

The obvious headline from this is that money makes us happy. In the medium term for medium sized lottery winners anyway. As good a study as this is it however leaves some questions unanswered. Here are a few of interest to me. Firstly, this only follows individuals for 2 years so we don’t know whether in the long term there are any adaptation effects. As frequently seen in health economics and discussed by Sen (and provides the basis for the capabilities approach), humans, adapt to new situations and over time expectations adjust and the situation becomes ‘normal’. Essentially in this case, people get used to having money. It would be interesting to see whether this is the case for lottery winners. Again a longitudinal approach would be ideal for testing this. Furthermore due to the infrequency of ‘large’ winners the authors did not investigate whether a large win has a larger or smaller effect on well being than a medium sized win. One wonders if and if so, at what point diminishing marginal utility becomes disutility and what is an optimal amount to win if this is the case. I would also be interested to know how happiness is affected by money when comparing earned money to won money. Is money the same regardless of whether it’s earned or won? These are all questions I hope to one day see answered (if not already!!). At the end of the day it seems like money does in fact lead to improved mental well being, in the medium term at least, we can only speculate whether these medium term improvements carry on into the long term.


Gardner and Oswald (2007), ‘Money and mental well being: A longitudinal study of medium-sized lottery wins’, Journal of Health Economics, Vol. 26, No.1, pp. 49-60.


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