Can money buy happiness? The urban dictionary defines greed as “the root of all evil”, but maybe greed is nothing more than the pursuit of happiness and does not merit such a bad reputation. Then again, perhaps the things that money can’t buy are what truly lead to happiness.
To put it more eloquently, Douglas Adams said of the suggested solutions to unhappiness that “most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn’t the small green pieces of paper that were unhappy.”
Kirchgässner (2014) defines greed as seeking “money ‘for its own sake’, i.e., beyond its instrumental use for consumption.” Greed is often observed in the wealthiest members of society: former presidential candidate Bernie Sanders rather radically claimed that the very rich suffer from “psychiatric issues” due to being addicted to money and to living in a world completely separate from the rest of us.
Is it the increase in wealth or the act of enriching oneself that drives people? Paul Piff (UC Berkeley) ran a small experiment to see what wealth does to people’s perception of a given situation. Two players played a rigged version of Monopoly, where one player got double the starting cash, twice the salary for passing go and two dice (to move around the board faster). The richer player won the game most of the time, but, more interestingly, rationalised the advantage afterwards by convincing themselves that they deserved the win, describing afterwards their “winning strategy” that got them the victory, not focusing on how unbalanced the game was (although most mentioned it at the start of the game). The rich players’ understanding of the game was clearly distorted. This begs the question: Do the wealthiest individuals in our society see the accumulation of wealth and greed differently to the rest of us? Is greed really something to be condemned or does it have some benefits overall?
More money than sense
The richest in our society seem to always need more money. Research suggests that there is an overall negative link between wealth and the proportion of income given to charitable causes – the wealth advantage seems to encourage greed rather than generosity. It is of course important not to overgeneralise, in light of initiatives such as the Giving Pledge, where 173 of the world’s richest individuals like Bill Gates and Warren Buffet voluntarily and publicly dedicate most of their fortune to philanthropy.
Rather than being down to some inherent trait of the rich, the increased greed seems to be acquired with the increase in wealth, and is therefore reversible. Paul Piff’s study finds that “small nudges in certain directions can restore levels of egalitarianism and empathy”, such as how reminding people of the benefits of cooperation can apparently shift people’s behaviour to a level at least as egalitarian as poor people.
We can use the example of Walter White in Breaking Bad to illustrate this: he starts out as a mild mannered teacher just trying to get enough money to provide for his family by selling a little crystal meth to a full-on drug kingpin in the “empire building business” who gets his satisfaction not from the accumulation of wealth per se (he could never spend all his earnings), but rather from the means and the process of earning the money. In a particularly poignant scene, his wife points to their huge pile of drug money and asks, “How big does this pile have to be?”, while all Walter can ask is “How much is this?”
The other man’s grass is always greener
There are several theories as to why people never seem to have enough money, one of the most compelling being the “rank income hypothesis”, or peer group comparison. The idea is that people are happier when they are doing better than the average in their group, rather than just from getting more income in absolute terms. Satisfaction is gained from each “better than” comparison and lost for each “worse than”.
There have been several studies illustrating this effect for various groups: for instance, a study of 16 000 workers (Brown et al, 2008) shows that workplace satisfaction depended on the rank of the wage within the workplace, and Clarke et al (2009) find the same within a neighbourhood.
People basically only really care about doing better than their neighbour, their work colleague or even their friends, rather than their absolute level of income.
This may be why the wealthiest individuals in society will likely never be content with their lot, as they identify with an economic “elite” (their comparison group) and always try to outperform the average of that group: indeed, Ferstman, Gneezy and List (2012) demonstrate this and call it “equity aversion”.
The compassion gap
There are several important consequences to this, but perhaps most importantly a “compassion gap” appears, where people care mostly about the issues that directly concern their group. Kraus, Côté and Keltner (2010) went as far as to suggest that the rich are less likely to identify human emotions. The wealthy are thus less likely to be in tune to the needs of the poorest in society, preferring to endorse the universities or institutions that they belonged to, and will rely on their money during hard times. The poorest will tend to give more to their neighbours suffering from the same hardships as they do, having been through it themselves, and will rely on the people around them when times get tough.
The problem with this is that the rich are often the policy makers, and will tend to under-evaluate the needs of the poor. While they only compare themselves to the elite, their decisions affect everyone. It would be hard to argue that Donald Trump’s tax breaks are beneficial to the majority.
A secondary effect is the increase in the feeling of entitlement: the richer a person is, the more likely they are to rationalise greed and to see it as beneficial. As Gordon Gekko put it in the 1987 film Wall Street, “Greed, for lack of a better word, is good. Greed is right. Greed works.” Thus, the likelihood of breaking laws that hinder their financial gain rises, as they feel that they deserve to get more, and believe that they have a superior “strategy” that allowed them to get where they are (in a similar way to the rigged monopoly game).
The benevolence of the butcher
Adam Smith’s invisible hand states that society is better off as a whole if everybody acts in their own self-interest: “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” This basically means: judge capitalism by the result rather than the means (although he did also warn of the dangers of excessive avarice).
However, the assumption of rational utility maximising self-interest has been rightly criticised many times, in particular with the arrival of Behavioural Economics. It would seem that – hold on for this – people sometimes act not entirely in their own self-interest (“positive” deviations from classical theory, e.g. altruism), pushing Nobel Prize-winning economist and philosopher Amartya Sen to say: “The purely economic man is indeed close to being a social moron.”
Highly selfish or greedy actions are “negative” deviations from classical theory that have not received as much attention as more positive deviations like cooperation, but they can have devastating effects, as demonstrated with the greed of bank managers and traders that contributed to the 2008 financial crisis.
An illustration of greed being incompatible with the assumption of rational behaviour is corruption. Traditional theory states that an individual will engage in corruption if the gains from the latter outweigh the expected losses from being caught (fines, prison, job or reputation loss). The sums involved in corruption should logically be large, but often they are surprisingly small compared to the expected loss. This points to a flawed perception of reality caused by greed that causes deviations from “rational” behaviour, with risk-aversion with respect to gains but risk loving behaviour when it comes to losses. Jin and Zhou (2013) show that sufficiently greedy traders are willing to take huge risks for huge rewards by incorrectly evaluating potential losses, perhaps due to an excessive fear of losing their current standard of living and a strong need to satisfy their money addiction. Trading involves logical brain functions, computation, and long-term planning, and thus emotions such as fear and greed that can cloud these functions result in poorer trading performance.
More money, more problems?
Greed distorts our view of the world and can have dire consequences for the individual and the economy, but once it takes hold, it is more likely to get worse than to get better. While rational self-interest may have its benefits, the world is more complex than that and more needs to done to understand the effects of greed and how to combat it.
Richard Friedman once said something that is important to bear in mind when in pursuit of riches: “Money will buy you a fine dog, but only love can make it wag its tail”.
by Tristan Salmon