Kahneman, Greed and Success
By Bryan Caplan
I just finished Daniel Kahneman’s Thinking, Fast and Slow. The book is a masterpiece. Most popular science books are 10% substance, 90% fluff. Kahneman reverses those percentages – yet remains a breezy joy to read. Thinking taught me much about material I already thought I knew well.
There’s plenty to argue with, of course. But let me start with some common ground. A while back, I hypothesized that differences in greed (or “materialism” or “orientation toward money” if you prefer) have a big effect on income. Kahneman has fascinating data to back me up:
A large-scale study of the impact of higher education… revealed striking evidence of the lifelong effects of the goals that young people set for themselves. The relevant data were drawn from questionnaires collected in 1995-1997 from approximately 12,000 people who had started their higher education in elite schools in 1976. When they were 17 or 18, the participants had filled out a questionnaire in which they rated the goal of “being very well-off financially” on a 4-point scale ranging from “not important” to “essential.”…
Goals make a large difference. Nineteen years after they stated their financial aspirations, many of the people who wanted a high income had achieved it. Among the 597 physicians and other medical professionals in the sample, for example, each additional point on the money-importance scale was associated with an increment of over $14,000 of job income in 1995 dollars! Nonworking married women were also likely to have satisfied their financial ambitions. Each point on the scale translated into more than $12,000 of added household income for these women, evidently through the earnings of their spouse.
People’s life satisfaction heavily depended on whether they achieved their personal ambitions:
The importance that people attached to income at age 18 also anticipated their satisfaction with their income as adults. We compared life satisfaction in a high-income group (more than $200,000 household income) to a low- to moderate-income group (less than $50,000). The effect of income on life satisfaction was larger for those who had listed being well-off financially as an essential goal: .57 point on a 5-point scale. The corresponding difference for those who had indicated that money was not important was only .12. The people who wanted money and got it were significantly more satisfied than average; those who wanted money and didn’t get it were significantly more dissatisfied.
Kahneman’s insinuation to the wise: Be careful when you wish for the highly improbable.
The same principle applies to other goals–one recipe for a dissatisfied adulthood is setting goals that are especially difficult to attain. Measured by life satisfaction 20 years later, the least promising goal that a young person could have was “becoming accomplished in a performing art.”
By the way, I take Kahneman’s evidence here as yet another counter-example to George Loewenstein’s view that happiness research and leftist politics are natural bedfellows. Kahneman highlights an important, neglected reason why some people are rich and others are poor: some people care about money more than the rest of us. People who want to be rich make the choices and sacrifices conducive to that end – and on average they succeed. “People who care more about X try harder to get X and as a result get more X”: This hardly seems like a “problem” in need of a political “solution.”*
What about the “losers”? Bite your tongue. When you call lower-income people “losers,” you’re falsely assuming that we’re all racing for the same finish line: material success. But to a large extent, lower-income people are just racing for other finish lines. Leftist outrage over income inequality is therefore deeply misguided. To a large extent, incomes differ because priorities differ. And if the poor don’t consider their lack of riches a big deal, why should anyone else?
* My point is not that Kahneman’s evidence refutes all arguments for income redistribution, but merely that his evidence is a good reason for reduced concern about material inequality.