What good is happiness if it can't buy money?

This NYTimes article covers recent results in happiness research, which shows that money does buy happiness after all ;-) The new data seem to show a stronger correlation between average happiness and economic development than earlier studies which had led to the so-called Easterlin paradox. One explanation for the divergence between old and new data is that people around the world are now more aware of how others in developed countries live, thanks to television and the internet. That makes them less likely to be content if their per capita incomes are low (see the hedonic treadmill below). The old data showed surprisingly little correlation between average income and happiness, but 30-50 years ago someone living in Malawi might have been blissfully unaware of what he or she was missing. See the article for links to the research papers and a larger version of the figure. Also see these reader comments from the Times, which range from the "happiness is a state of mind" variety to "money isn't everything but it's way ahead of whatever is in second place."

In previous posts we've discussed the hedonic treadmill, which is based on the idea of habituation. If your life improves (e.g., move into a nicer house, get a better job, become rich), you feel better at first, but rapidly grow accustomed to the improvement and soon want even more. This puts you on a treadmill from which it is difficult to escape. The effect is especially pernicious if you adjust your perceived peer group as you progress (rivalrous thinking) -- there is always someone else who is richer and more successful than you are! Note, the hedonic treadmill is not inconsistent with an overall correlation between happiness and income or wealth. It just suggests diminishing returns due to psychological adjustment.

Working class millionaires

A nice series in the Times by Gary Rivlin. It does a good job of capturing how real startup people think about wealth, their lives and families.

I'm glad I live in Eugene, Oregon -- easier to resist the hedonic treadmill in this eco-hippy college town :-)

In Silicon Valley, millionaires don't feel rich (check out the video as well).

Living modestly, despite a nice nest egg (this guy is successfully resisting the hedonic treadmill).

Making do, with $10 million (keeping up with the Joneses in the valley -- one of the rare times a journalist accurately describes the "carrying costs" of the wealthy lifestyle; I guess he had help).

Angry commentary from Metafilter, and more from Dave Winer.

...Silicon Valley is thick with those who might be called working-class millionaires — nose-to-the-grindstone people like Mr. Steger who, much to their surprise, are still working as hard as ever even as they find themselves among the fortunate few. Their lives are rich with opportunity; they generally enjoy their jobs. They are amply cushioned against the anxieties and jolts that worry a vast majority of people living paycheck to paycheck.

But many such accomplished and ambitious members of the digital elite still do not think of themselves as particularly fortunate, in part because they are surrounded by people with more wealth — often a lot more.

When chief executives are routinely paid tens of millions of dollars a year and a hedge fund manager can collect $1 billion annually, those with a few million dollars often see their accumulated wealth as puny, a reflection of their modest status in the new Gilded Age, when hundreds of thousands of people have accumulated much vaster fortunes.

“Everyone around here looks at the people above them,” said Gary Kremen, the 43-year-old founder of Match.com, a popular online dating service. “It’s just like Wall Street, where there are all these financial guys worth $7 million wondering what’s so special about them when there are all these guys worth in the hundreds of millions of dollars.”

Mr. Kremen estimated his net worth at $10 million. That puts him firmly in the top half of 1 percent among Americans, according to wealth data from the Federal Reserve, but barely in the top echelons in affluent towns like Palo Alto, Menlo Park and Atherton. So he logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here.

...A few even choose to jump off the golden treadmill.

That is what Mark Gage, 51, an engineer, and his wife, Meredith, did when they left the Bay Area in 2005 with $3 million or so in assets. They bought a house in Bend, Ore. — “a bigger, much nicer home with dramatic views” — and now Mr. Gage works only when the perfect consulting job presents itself.

Yet the same drive that earned so many of the engineers and entrepreneurs who live here their fortunes keeps them tied to the Valley, which resembles nothing so much as a sprawling post-war suburb, though one whose roadways are thick with cars costing in the six figures.

Lifelong tenure

Good evening, everyone.

Let me add my sincere congratulations to those you’ve already heard tonight. Tenure at a great research university is a milestone in the life of a scholar. I hope you will take some time to reflect and to enjoy.

In psychology there is a well-known phenomenon called the Hedonic Treadmill. Individuals who achieve an important goal -- whether it is becoming a millionaire, or sports champion, or tenured professor -- are often quick to discount the achievement. Happiness levels rise only briefly, and then it’s back to the treadmill, with some new goal in mind and no measurable increase in life satisfaction.

Please do your best to resist the Hedonic Treadmill, and allow yourself more than a brief moment of happiness on this important occasion :-)


With great gifts come great responsibilities. I have two requests for each of you, now that you are firmly ensconced at the very heart of our university.

1. Think about the last 6 years and ask yourself: what can MSU do to improve the experience of junior faculty? Can we be clearer about the promotion and tenure process? Should we do more to protect new faculty from service burdens? Is there enough communication and mentoring within your department? No one is in a better position than you are, at this moment, to recognize necessary improvements, and to help make them a reality. If you don't do it, who will?

2. Make use of your tenure. Take risk in service of great achievements. Think great thoughts, ask deep questions, and attempt challenging and original projects. This promotion means that you have all the potential required to make a lasting contribution to human knowledge. With luck and hard work, you will carry it through.

Congratulations to you all.

Rivalry and habituation

I've been reading a bit about rivalrous behavior and the "hedonic treadmill" lately. For nice expository papers see the Web page of Richard Layard, an LSE economist who has a new book on the economics of happiness.

The hedonic treadmill is based on the idea of habituation. If your life improves (e.g., move into a nicer house, get a better job, become rich), you feel better at first, but rapidly grow accustomed to the improvement and soon want even more. This puts you on a treadmill from which it is difficult to escape. (Of course, habituation can be a good thing: after a traumatic event (e.g., loss of job, or limb, or loved one), you feel terrible at first but after a while can go on with your life.) Incidentally, I know a lot of former physicists now on Wall Street, who provide a nice example of habituation. Most go into finance thinking of a particular "number" (net worth) they want to reach in order to retire. But, their lifestyle requirements and therefore number tend to increase along with compensation, making escape difficult.

Layard believes people work too much, are too obsessed with money, and take too little leisure. In addition to habituation, another cause of this is so-called rivalrous behavior, in which our happiness depends on how our situation compares with a reference group of peers (co-workers, neighbors, family members, etc.). As an example of rivalrous behavior, people asked questions such as: "Which would you prefer: your salary is $50K per year, but your peers make $25K, or your salary is $100K per year, and your peers' $200K?" generally prefer the former, even though they would be worse off in absolute terms. However, people are not rivalrous when it comes to leisure: when asked a similar question about vacation, most people prefer the choice which gives them the most vacation, regardless of how much their peers are allowed. If you consider these results, it suggests that people would be happier in a society that is (a) more egalitarian and (b) offers more leisure, even if they are not as materially wealthy. As a Labour MP, you might imagine Layard would prefer this European economic model over the nasty US one, but he does have some interesting data supporting his assertions.

Without specifically endorsing Layard's policy recommendations, I can agree that habituation and rivalry abound. Most PhD students dream of becoming tenured professors, not realizing how rapidly the resulting glow can fade into petty competition over salary or citations. Many young entrepreneurs or financiers imagine happiness is guaranteed upon achieving millionaire status, only to realize that their new peer group comes with even wealthier, more successful, rivals.

The brute tyranny of g-loading: Lawrence Krauss and Joe Rogan

I love Joe Rogan -- he has an open, inquisitive mind and is a sharp observer of life and human society. See, for example, this interview with Dan Bilzerian about special forces, professional poker, sex, drugs, heart attacks, life, happiness, hedonic treadmill, social media, girls, fame, prostitution, money, steroids, stem cell therapy, and plenty more.

I know Lawrence Krauss quite well -- he and I work in the same area of theoretical physics. However, the 20+ minute opening segment in which Krauss tries to explain gauge symmetry (1, 2, 3) to Joe is downright painful. Some things are just conceptually hard, and are built up from other concepts that are themselves non-obvious.

Gauge symmetry is indeed central to modern theoretical physics -- all of the known forces of nature are gauge interactions. I've been at an uncountable number of cocktail parties (sometimes with other professors) where I've tried to explain this concept to someone as sincerely interested as Rogan is in the video. Who doesn't like to hear about fundamental laws of Nature and deep principles of physical reality?

No matter how clearly a very g-loaded concept is explained, it is challenging for the typical person to comprehend. (This is almost a definition.) Many ideas in physics are challenging even to college professors. One sad aspect of the Internet is that there isn't any significant discussion forum or blog comment section where even much simpler concepts such as regression to the mean are understood by all the participants.

Listening to the conversation between Joe and Lawrence about gauge theory and the Higgs field, I couldn't help but think of this Far Side cartoon:

Oppenheimer: Mathematics is "an immense enlargement of language, an ability to talk about things which in words would be simply inaccessible."

See also this Reddit discussion of the podcast episode.

On $500k a year

Hmm... after tax, that's barely above the carrying cost for a family of 4 in Manhattan -- assuming the usual private schools and a typical banker's wife ;-) See here for detailed accounting -- warning, may perturb your hedonic treadmill :-)

I understand the pay caps don't limit incentive stock option compensation. Perhaps that leaves some wiggle room, depending on what people think about the future value of bank shares (and modulo the inevitable nationalization we keep putting off). You certainly have to apply a deep discount relative to cash.

Some individuals are going to hop to foreign and smaller banks which are unencumbered by pay caps, or to hedge funds and money management firms. But I doubt job hopping is very easy for most employees right now, so I suspect this pay cap isn't going to hurt the banks that much (certainly far less than they've hurt themselves recently!), at least until conditions start to improve.

I'm interested in opinions from people on the Street, though :-)

Vacation reading: Gregory Clark's A Farewell to Alms

A Farewell to Alms: A Brief Economic History of the World



Clark's book is an ambitious look at world economic history. The first half of the book is an excellent discussion of the Malthusian trap, in which increases in standard of living only lead to increases in population, which then (over generations) lead to declines in standard of living. The only stable point of this dynamics is at subsistence-level income. I need to think more about it, but I suspect Clark overstates the case for how well the Malthusian model applied in early human history. My impression is that there were wide disparities in levels of development that can't be easily explained in that context.

The second half of the book concerns the industrial revolution, and advances his (controversial) thesis that one of the main causes for this qualitative shift in the rate of human advancement was genetic. By analyzing historical demographic data he argues that by 1800 almost all residents of England were descended from previous generations of wealthy strivers -- reproduction rates correlated highly with family wealth in the previous Malthusian era, and the wealthy literally replaced the poor over time (less favored offspring of the rich often become the poor of future generations). Therefore, traits which are positive for commerce, long term planning, wealth accumulation, market organization, etc. had become much more widespread thanks to natural selection. I find this effect plausible -- it is consistent with recent genetic data on accelerated human evolution -- but am not as convinced that it dominates over cultural factors (at least, the two would work hand in hand). His case that it was a priori likely for England to be the first to have an industrial revolution doesn't seem particularly convincing (see Kenneth Pomeranz's Great Divergence for another set of arguments based on geography and natural resources).

Clark makes the interesting connection between modern man's descent from the strivers of previous generations and the hedonic treadmill: our happiness seems to correlate more with our position relative to perceived peers than with absolute levels of wealth.

I like the following quote from the final chapter of the book. I always found it very amusing that modern economic models can't do much better than to treat technological change as an exogenous, stochastic variable. (Yes, I know about Romer and growth theory, but would lump that in the "can't do much better" category.)

God clearly created the laws of the economic world in order to have a little fun at economists' expense. In other areas of inquiry, such as the physical sciences, there has been a steady accumulation of knowledge over the past four hundred years. Earlier theories proved inadequate. But those that replaced them encompassed the earlier theories and gave practitioners greater ability to predict outcomes across a wider range of conditions. In economics, however, we see instead that our ability to describe and predict the economic world reached a peak around 1800. In the years since the Industrial Revolution there has been a progressive and continuing disengagement of economic models from any ability to predict differences of income and wealth across time and across countries and regions.

Happiness

In the previous post I mentioned my scores on this Big Five personality test. Someone immediately doubted whether I (or any theoretical physicist) could really have scored at the 99th percentile for Stability (opposite of Neuroticism). Upon further reflection, I find the result a little puzzling as well!

One contributing factor I can point to is that I've been thinking about the problem of happiness and the hedonic treadmill for some time.

It's also true that my father passed away while I was still fairly young, so I had the impetus to consider his life in its entirety and to evaluate which of the things he did really mattered, and which didn't.

If you're interested in optimizing your own life satisfaction, I recommend the Happiness Project blog, written by Gretchen Rubin (she is Robert Rubin's daughter in law; I once worked with her husband who was at the time an investment banker). I especially recommend her short movie The Years Are Short (it's only a minute or so long) to any parent with small kids.

I guess I would describe myself as something of a stoic. My favorite bit of advice for academics comes from...

Marcus Aurelius

"Or does the bubble reputation distract you? Keep before your eyes the swift onset of oblivion, and the abysses of eternity before us and behind; mark how hollow are the echoes of applause, how fickle and undiscerning the judgments of professed admirers, and how puny the arena of human fame. For the entire earth is but a point, and the place of our own habitation but a minute corner in it; and how many are therein who will praise you, and what sort of men are they?"

The French Way: Alain Connes interview

I came across this interview with Fields Medalist Alain Connes (excerpt below) via an essay by Dominic Cummings (see his blog here).

Dom's essay is also highly recommended. He has spent considerable effort to understand the history of highly effective scientific / research organizations. There is a good chance that his insights will someday be put to use in service of the UK. Dom helped create a UK variant of Kolmogorov's School for Physics and Mathematics.

On the referendum and on Expertise: the ARPA/PARC ‘Dream Machine’, science funding, high performance, and UK national strategy


Topics discussed by Connes: CNRS as a model for nurturing talent, materialism and hedonic treadmill as the enemy to intellectual development, string theory (pro and con!), US, French, and Soviet systems for science / mathematics, his entry into Ecole Normale and the '68 Paris convulsions.

France and Ecole Normale produce great mathematicians far in excess of their population size.

Connes: I believe that the most successful systems so far were these big institutes in the Soviet union, like the Landau institute, the Steklov institute, etc. Money did not play any role there, the job was just to talk about science. It is a dream to gather many young people in an institute and make sure that their basic activity is to talk about science without getting corrupted by thinking about buying a car, getting more money, having a plan for career etc. ... Of course in the former Soviet Union there were no such things as cars to buy etc. so the problem did not arise. In fact CNRS comes quite close to that dream too, provided one avoids all interference from our society which nowadays unfortunately tends to become more and more money oriented.


Q: You were criticizing the US way of doing research and approach to science but they have been very successful too, right? You have to work hard to get tenure, and research grants. Their system is very unified in the sense they have very few institutes like Institute for Advanced Studies but otherwise the system is modeled after universities. So you become first an assistant professor and so on. You are always worried about your raise but in spite of all these hazards the system is working.


Connes: I don’t really agree. The system does not function as a closed system. The US are successful mostly because they import very bright scientists from abroad. For instance they have imported all of the Russian mathematicians at some point.


Q: But the system is big enough to accommodate all these people this is also a good point.


Connes: If the Soviet Union had not collapsed there would still be a great school of mathematics there with no pressure for money, no grants and they would be more successful than the US. In some sense once they migrated in the US they survived and did very well but I believed they would have bloomed better if not transplanted. By doing well they give the appearance that the US system is very successful but it is not on its own by any means. The constant pressure for producing reduces the “time unit” of most young people there. Beginners have little choice but to find an adviser that is sociologically well implanted (so that at a later stage he or she will be able to write the relevant recommendation letters and get a position for the student) and then write a technical thesis showing that they have good muscles, and all this in a limited amount of time which prevents them from learning stuff that requires several years of hard work. We badly need good technicians, of course, but it is only a fraction of what generates progress in research. It reminds me of an anecdote about Andre Weil who at some point had some problems with elliptic operators so he invited a great expert in the field and he gave him the problem. The expert sat at the kitchen table and solved the problem after several hours. To thank him, Andre Weil said “when I have a problem with electricity I call an electrician, when I have a problem with ellipticity I use an elliptician”.

From my point of view the actual system in the US really discourages people who are truly original thinkers, which often goes with a slow maturation at the technical level. Also the way the young people get their position on the market creates “feudalities” namely a few fields well implanted in key universities which reproduce themselves leaving no room for new fields.

....

Q: So you were in Paris [ Ecole Normale ] in the best place and in the best time.

Connes: Yes it was a good time. I think it was ideal that we were a small group of people and our only motivation was pure thought and no talking about careers. We couldn’t care the less and our main occupation was just discussing mathematics and challenging each other with problems. I don’t mean ”puzzles” but problems which required a lot of thought, time or speed was not a factor, we just had all the time we needed. If you could give that to gifted young people it would be perfect.

See also Defining Merit:

... As a parting shot, Wilson could not resist accusing Ford of anti-intellectualism; citing Ford's desire to change Harvard's image, Wilson asked bluntly: "What's wrong with Harvard being regarded as an egghead college? Isn't it right that a country the size of the United States should be able to afford one university in which intellectual achievement is the most important consideration?"

E. Bright Wilson was Harvard professor of chemistry and member of the National Academy of Sciences, later a recipient of the National Medal of Science. The last quote from Wilson could easily have come from anyone who went to Caltech! Indeed, both E. Bright Wilson and his son, Nobel Laureate Ken Wilson (theoretical physics), earned their doctorates at Caltech (the father under Linus Pauling, the son under Murray Gell-Mann).

Where Nobel winners get their start (Nature):

Top Nobel-producing undergraduate institutions

Rank School                Country               Nobelists per capita (UG alumni)
1 École Normale Supérieure France       0.00135
2 Caltech                               US             0.00067
3 Harvard University            US             0.00032
4 Swarthmore College          US             0.00027
5 Cambridge University       UK             0.00025
6 École Polytechnique          France       0.00025
7 MIT                                   US              0.00025
8 Columbia University         US              0.00021
9 Amherst College               US              0.00019
10 University of Chicago     US              0.00017

Joe Rogan interviews Dan Bilzerian

This is one of the best interviews I've heard in a long time. Warning: NSFW.

Joe Rogan interviews professional poker player and social media icon Dan Bilzerian. If you don't know who he is, check him out on Instagram (guns, girls, private jets, high stakes poker = 20 million followers = NSFW).

Among the topics covered: DB's experience in Navy SEAL training, high stakes poker, online poker in the early 2000s, sex, drugs, heart attacks, life, happiness, hedonic treadmill, social media, girls, fame, prostitution, money, steroids, stem cell therapy, and plenty more.

You can get the interview in smaller topical chunks (one of the best segments is embedded below). At bottom is the full 3 hours.

Income inequality: Manhattan toddlers

From the Times, this story tells a lot about what's happening in Manhattan. My friends there say it's very kid-friendly these days, with crime way down from a few decades ago.

Given how the hedonic treadmill works, I can't imagine living in Manhattan if I were a Columbia or NYU professor. Who wants to be the poorest family in the neighborhood? ;-) One of the families in the article, the father a management consultant, says they won't be able to afford the upper West Side once their kids each need a bedroom of their own.

The analysis shows that Manhattan’s 35,000 or so white non-Hispanic toddlers are being raised by parents whose median income was $284,208 a year in 2005, which means they are growing up in wealthier households than similar youngsters in any other large county in the country.

Among white families with toddlers, San Francisco ranked second, with a median income of $150,763, followed by Somerset, N.J. ($136,807); San Jose, Calif. ($134,668); Fairfield, Conn. ($132,427); and Westchester ($122,240).

Median household income of families with children ages 0 to 4. (Left is all ethnic groups, right is non-Hispanic whites only.)



For more on income inequality, including the interesting observation that it is primarily driven by financiers and tech entrepreneurs (third link), see here.

Full Attention: best scene from The Social Network

Silicon Valley Man meets Legal Man -- my favorite scene from The Social Network. Yes, Zuckerberg comes off as an ass, but it's what real startup guys think and feel.

You have part of my attention. You have the minimum amount. The rest of my attention is back at the offices of facebook, where my colleagues and I are doing things that no one in this room, including and especially your clients, are intellectually or creatively capable of doing. Did I adequately answer your condescending question?

Hedonic treadmill alert: bad enough that Zuckerberg is the youngest billionaire ever, Sean Parker is also worth nearly a billion!

I notice the movie didn't give out all the details of the Saverin settlement (rumor has it he got about $1 billion as well). See here for more background. Was it just me or did the whole thing seem like an advertisement for Harvard?