More on Money and Happiness

Elizabeth Dunn thinks so. Dunn is a social psychologist at the University of British Columbia, and in a new paper, she's teamed up with Dan Gilbert of Harvard University and Timothy Wilson of the University of Virginia to show us how we can spend our money to better maximize our happiness.

According to them, money "can buy many, if not most, if not all of the things that make people happy, and if it doesn't, then the fault is ours." Because, they say, we're not spending it right.

The problem, they argue, is that:

Most people don’t know the basic scientific facts about happiness—about what brings it and what sustains it—and so they don’t know how to use their money to acquire it. ... Money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t.

We have trouble predicting what will make us happy and how long this happiness will last, they say, because we're not good at mentally simulating future events—so we often don't realize how easily we'll adapt to them, for example—and we also don't realize that we'll be experiencing an event in a different context than the one in which we make predictions about it.

So the question, is how should we be spending our money to make ourselves happier? Here are the rules they lay out, plucked straight from their paper:

Buy experiences instead of things:

Individuals experienced elevated mood when contemplating a past experiential purchase (relative to those contemplating a past material purchase), suggesting that experiential purchases produce more lasting hedonic benefits.

Help others instead of yourself:

Almost anything we do to improve our connections with others tends to improve our happiness as well—and that includes spending money.

Buy many small pleasures instead of few big ones:

If we inevitably adapt to the greatest delights that money can buy, than it may be better to indulge in a variety of frequent, small pleasures—double lattes, uptown pedicures, and high thread-count socks—rather than pouring money into large purchases, such as sports cars, dream vacations, and front-row concert tickets.

Buy less insurance:

Research suggests that people don’t know much about their own psychological immune systems ... and as a result they overestimate their vulnerability to negative affect. Businesses often trade on that ignorance by offering various forms of insurance against unhappiness, from extended warranties to generous return policies.

Pay now and consume later:

Vast literatures on delay of gratification, intertemporal choice, and delay discounting show that when people are impatient, they end up less well off ... . But there is a second reason why “consume now, pay later” is a bad idea: it eliminates anticipation, and anticipation is a source of “free” happiness.

Think about what you’re not thinking about:

Cast in the soft light of imagination, ... unpleasant, inessential details naturally recede from view, potentially biasing consumers’ predictions about the degree of happiness that their purchases will provide.

Beware of comparison shopping:

By altering the psychological context in which decisions are made, comparison shopping may distract consumers from attributes of a product that will be important for their happiness, focusing their attention instead on attributes that distinguish the available options.

Follow the herd instead of your head:

Research suggests that the best way to predict how much we will enjoy an experience is to see how much someone else enjoyed it.