While finishing off the fourth chapter of my book (in which I explore the links between happiness and grades) I came across an interesting academic paper written by Nattavudh Powdthavee, a socio-economist at the University of York. The paper is titled, ‘Putting a Price Tag on Friends, Relatives and Neighbours’ and in it, Powdthavee uses a method called shadow pricing to assign monetary values to a number of social phenomenon.

Shadow Pricing Explained

How does shadow pricing work? The statistical maths behind it is a little complicated but the basic idea can be illustrated with the following example: Let’s say you are earning £10,000 a year. At this point you may rate your happiness to be a six, on a scale of one to ten. However, the following year you get promoted and your salary is increased to £30,000. When you are asked how happy you are, you now reply with a happiness rating of eight. Assuming nothing else contributed to your happiness, one could infer that to increase your happiness by two points you require £20,000. Now, what if in another situation instead of an increase in salary, you got married and your happiness did also move from six to eight. One could then infer that the shadow price of marriage is £20,000.

Powdthavee’s methadology is more sophisticated than my example implies, and uses data from the British Household Panel Survery, which includes over 10,000 randomly selected individuals. What you get from such enormous data are estimates and valuations which are eye-opening. Powdthavee estimates, for instance, that if you move from seeing your friends or relatives less than once a month to seeing them on most days (more than twice a week), your life satisfaction could improve just as much as if you were handed £85,000!

What is the significance of this number? And why should we put ‘price-tags’ on friends? Well, for one, this figure is a reminder of how important it is to have a healthy social life if you want to be happy (and don’t forget, happy people often outperform sad people in a number of fields, including education). Secondly, such estimates can help with decision making. For example, when you graduate you might be faced with the dilemma of choosing between a high-paying job which requires you to relocate far away from your friends and relatives, and a lower-paying job nearer home. But with a monetary estimate of how much your social life is worth, you can make better-informed decisions in situations such as these.

Here are few other interesting estimates in Powdthavee’s paper (the reds are negative values):

• Seeing friends/relatives once or twice a month: £57,500
• Seeing friends/relatives once or twice a week: £69,500
• Seeing friends/relatives on most days: £85,500
• Marriage: £50,500
• Living as a couple: £82,500
• Unemployed: £143,000

My favorite positive psychology study is one published in Science by Liz Dunn and her colleagues at UBC. They found that people who spent their salary bonuses on other people were happier than those who spent it on themselves. And they did an experiment in which they gave students five dollars or twenty dollars and instructed them to either spend the money on themselves or on someone else. Like rational economists, other students guessed that it would make people happiest to get the larger amount and to spend it on themselves. But that is not what happened. Instead, the students were happiest when they bought someone else a gift, regardless of the amount. These findings are part of a heartening wave of new research suggesting that human beings are chock-full of mechanisms designed to make us feel good when we cement our bonds with those around us.

Excerpt from Sex, Murder, and the Meaning of Life by Douglas T. Kenrick

We use the word “need” much too casually. The only things we truly need are the basics of physical survival—air, water, food, clothing, shelter—and everyone reading this book already has these. We also need the basics of intellectual and emotional well-being—love, family, friendship, satisfying work, hobbies, faith—each reader has his or her own list here. But it’s a short list, and it does not—or should not—include the $500 jacket or the $100,000 car, because there are other jackets and cars. It should not include this particular job or sale or deal, because there are other jobs and sales and deals.

Excerpt from Start With No by Jim Camp.

Finally, graduation is upon us. In last three years we have slaved away and worked relentlessly to achieve one key goal: to graduate. But now that University is over, a whole new world opens up. How are we to direct our lives from here on; especially after spending 17+ years in an education system, which to a certain extent did the directing for us?

As we enter the ‘real world’, we are invited, or rather, are required to consider the bigger picture and direct our own lives. The best way of doing this is by setting our own goals and working towards new aspirations. Goals will continue to be particularly important in this journey because:

Ample evidence links goals to well-being. Goals can provide structure, meaning, identity, and a sense of purpose, and progress towards goals results in positive affective states such as hope, enthusiasm, and pride.

(Segerstrom and Nes, 2006)

In other words, goals are good for our psychological health. But what kind of goals should we pursue after graduation? Ideally the ones that lead to the highest level of life satisfaction and subjective well-being. Many desire money, material wealth, image, and fame, but there is a ‘dark side to the American dream’, as Kasser and Ryan (1993) found. In a study where they interviewed college students, they concluded:

When goals for financial success exceed those for affiliation, self-acceptance, and community feeling, worse psychological adjustment was found.

(Kasser and Ryan, 1993)

Therefore personal growth, close relationships and community involvement should not be ignored as we venture out into the real world. Such aspirations, labeled by Kasser and Ryan (1996) as intrinsic goals, help satisfy our basic psychological needs, which are:

Autonomy

a sense of choice and free will




Competence

effective interaction with the environment




Relatedness

connecting with others and being cared about




(Niemic, Ryan, and Deci, 2009)

Extrinsic goals such as money and fame are not as conducive to these needs and so we must be cautious, for the single-minded pursuit of extrinsic aspirations could lead to a very unsatisfactory life.

Not to say that pursuing money is totally unhealthy. If you want to be rich, just make sure that it is for the ‘right’ reasons i.e. the money facilitates an increase in autonomy, competence, and relatedness. The wrong reason would be an attempt to use the money to show off, or to garner some form of external validation about yourself.

I guess this essay applies to me more than anyone else. In fact, I wrote it firstly for me because I have a big financial goal. After doing some reading and reflection, I have adjusted my goals accordingly.

Fellow graduates, as we set out to begin our adult lives, let us make sure that if we are to pursue anything in life, that it leads to an increased sense of free will (autonomy), personal growth (competence), community involvement and good relationships (relatedness).

References:

Kasser, Tim, and Richard M. Ryan. “A Dark Side of the American Dream: Correlates of Financial Success as a Central Life Aspiration.” Journal of Personality and Social Pyschology (1993) 65, no. 2: 410-422.

Kasser, Tim, and Richard M. Ryan. “Further Examining the American Dream: Differential Correlates of Intrinsic and Extrinsic Goals.” Personality and Social Psychology Bulletin 22, no. 3 (1996): 280-287.

Niemiec, Christopher P., Richard M. Ryan, and Edward L. Deci. “The Path Taken: Consequences of Attaining Intrinsic and Extrinsic Aspirations in Post-college Life.” Journal of Research in Personality 43, no. 3 (2009): 291-306.

Segerstrom, Suzanne C., and Lise Solberg Nes. “When Goals Conflict But People Prosper: The Case of Dispositional Optimism.” Journal of Research in Personality 40, no. 5 (2006): 675-693.

Some people think that money is not important for happiness, or even that rich people are not happy. On the contrary, research has shown that people who are well-off financially are happier than poor people (Diener & Biwas-Diener, 2002; Diener & Seligman, 2004). It has usually been assumed that financial success brings happiness. But it is also true that happy people make more money. Indeed, happy people are successful in many areas of life that require motivation and persistence, including domains such as work and income (Lyubomirsky et al., 2005).

Excerpt from Life Goals and Well-Being: Are Extrinsic Aspirations Always Detrimental to Well-Being? by Ingrid Brdar, Majda Rijavec & Dubravka Miljkovic