How much money is enough to make us happy? Because the effect of income on our happiness depends largely on how much money our colleagues, neighbours and friends earn, it’s difficult to say. Yet it’s easier to say how much extra money is required, on average, for a socially isolated person to be just as happy as a socially active person – no more, no less.
The calculation of prices of various non-marketable goods such as the joy of friendship or marriage, first put forward in the early 1990s by the University of Warwick economist Andrew Oswald, is based on a very simple idea. Imagine that, on average, money makes people happy. Imagine also that people who see their friends every day are significantly happier than those who live in isolation. In principle, then, it’s possible to calculate how much extra income would have to be given to someone to compensate exactly for the lack of social life.
In Britain, for example, a pay rise of £1,000 is associated with an increase in happiness of approximately 0.0007 points on a self-reported seven-point happiness scale. Seeing friends more often, on the other hand, is associated with an increase in happiness of approximately 0.161 points. What this implies is that swapping a sociable life for an isolated one requires a pay rise of approximately 0.161/0.0007 – roughly £230,000 a year. That’s a little more than a new, gleaming Ferrari 612 Scaglietti.