In the current issue of Science (behind a subscription wall) there is a piece by Alan B. Krueger, Daniel Kahneman, David Schkade, Norbert Schwarz, and Arthur Stone that suggests the link between income and happiness is mostly an illusion.
[Abstract] The belief that high income is associated with good mood is widespread but mostly illusory. People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities. Moreover, the effect of income on life satisfaction seems to be transient. We argue that people exaggerate the contribution of income to happiness because they focus, in part, on conventional achievements when evaluating their life or the lives of others.
On the research, from Eureka Alert:
For the new study, the researchers examined data from the 2004 survey to illustrate misperceptions that more money buys more happiness. Their experiment extended previous studies in which people have exhibited a “focusing illusion” when asked about certain factors contributing to their happiness — attributing a greater importance to that factor once it has been brought to mind. For example, when people were asked to describe their general happiness and then asked how many dates they had in the past month, their answers showed little correlation. But when the order of the questions was reversed for another group, the link between their love lives and general happiness became much greater.
To test whether this illusion applied to income, Krueger, Kahneman and their colleagues studied the responses given by the women in the 2004 DRM survey. After they were asked to report the percentage of time they spent in a bad mood the previous day, they were asked to predict how much time people with certain income levels spend in a bad mood.
Survey respondents expected women who earned less than $20,000 a year to spend 32 percent more of their time in a bad mood than they expected people who earned more than $100,000 a year to spend in a bad mood. In actuality, respondents who earned less than $20,000 a year reported spending only 12 percent more of their time in a bad mood than those who earned more than $100,000. So the effect of income on mood was vastly exaggerated.