The Key Lesson From The Great Recession: Cognitive Bias Follows Black Swan Events

The “$75,000 = Happiness Study” and How the American Middle Class got “Anchored” After the Great Recession

How much money buys happiness?

There was a time when we tried to answer that question. It was part of our reaction to one of our prior Black Swan events. If you recall, there was a popular phrase around the time of The Great Recession.

“$75,000 is the magic salary for happiness.”

Most people just shortened it to “$75K = Happpiness.”

That was the headline in all our heads.

In reality, this referenced a 2010 study authored by Nobel Prize winners Angus Deaton and Daniel Kahneman.

Two Nobel laureates took the liberty of answering the question, “How much money buys happiness?” (Whether money brings happiness was a forgone conclusion.)

The answer to happiness appeared to be a cool $75K. That’s what the flurry of articles reported. Here’s a screen grab of google showing the headlines.

It’s easy to forget — a decade later, in a strong economy — that people’s lives were being destroyed during The Great Recession.

Jobs, 401Ks, Homes, Subjective Happiness — disappearing like Recession-casserole in the Church basement.

“$75,000=Happiness” became the cool waters— believable enough — that a desperate American Middle Class could still sink it’s dreams into.

But when you read the actual “$75K=Happiness” study, you realize those stories buried the lead.

There’s a level of nuance to the Study that never made it into those click-baitable headlines of “$75K Happiness.”

In the actual study, Kahneman and Deaton define happiness as, “two distinguishable aspects of subjective well-being.” (One of which continues to greatly improve as income increases).

  • Emotional Well-Being: The day-to-day experiences that make life pleasant or unpleasant. ($75,000 is an income plateau, above which the day-to-day grind is relatively unimproved by having more money. Is your caffeine from Starbucks or Folgers?)
  • Evaluation of Life: One’s overall life satisfaction. (More money helps make all the bullshit seem worth it.)

$75K Happiness Didn’t Age Well

But, before you think $75K still applies in 2019, don’t forget inflation. Thanks to inflation, $75K happiness actually now means $89K happiness.

“Hey, you scratched my anchor!”

At what point does “monetizing happiness” trigger the heuristics of bullshit detection? Perhaps this will send a bullshit flag up your flagpole.

In a 2010 speech, Angus Deaton actually admitted that, “Measures of income don’t offer much insight unless they can be thought of in terms of differences in purchasing power.” (As in, a lot depends on “the cost of living” in your neck of the way).

Adding to that olfactory hue of barnyard, Mr. Deaton then made the radical suggestion that Economists literally — “just ask people about their well-being instead.”

“Thank You for calling Movie Phone.”

Dropping “Anchor” On The Flying Wasp

Here’s the thing — Daniel Kahneman was the first psychologist to theorize and study “anchoring.” Anchoring is a cognitive bias where an individual relies too heavily on an initial piece of information (often a number) when making a decision.

Kahneman wrote a best seller that summarizes all his work on anchoring, along with the other biases titled, “Thinking Fast and Slow.”

  • One study in it describes how anchoring works asked, “whether Mahatma Gandhi died before or after age 9, or before or after the age of 114.”
  • Clearly neither of these ages is correct, but when the two groups were then asked how old Gandhi was when he died, their guesses were significantly different.
  • The age 9 group said Gandhi died at age 50, while the age 140 group said he died at age 67).”

Remember this for the rest of your life … It is possible for a larger or smaller number to be magically conjured in your mind by the mere mention of an unrelated big or small number…

Why Would Anyone Want to “Anchor” American Happiness to $75K?

The Great Recession was the beginning of another headline-grabbing story, “America’s shrinking Middle Class.

In the wake of The Great Recession, Pew Research Center published the 2012 study, “The Lost Decade of the Middle Class: Fewer, Poorer, Gloomier.”

“Fully 85% of self-described middle-class adults say it is more difficult now than it was a decade ago for middle-class people to maintain their standard of living.”

The survey asked respondents how much annual income a family of four would need to lead a middle-class lifestyle.

The Magic Number? $70,000.

What this means is that both the Pew Research “Middle Class Study,” and the “$75K=Happiness” study essentially reported the same magic number +/-$5,000.

Just a coincidence?

What would be the benefit of trying to keep all us Jones’ happy with our lot?

It is not traditionally the most downtrodden people who are liable to revolt. Instead, revolutionaries are more likely to be those who have been given at least some taste of a better life. When the economic and social improvements they have experienced are suddenly less available, they desire them more than ever and often rise up violently to secure them. — Robert Cialdini

“$75K=Happiness” was version 2.0 of the California Gold Rush?

After struggling through recessions in the 1820’s, 30’s and 40’s, America was primed for a story we could sink our dreams into.

The California Gold Rush was that story — started by Samuel Brannan, a store owner and newspaper man.

Brannan started spreading this story after he bought all the gold pans, shovels, and picks in San Francisco!

Brannan reportedly paraded up and down the streets of San Francisco with a a vial of gold dust shouting famously, “Gold, Gold in the American River!

And thus began the first time the world flocked to Silicon Valley.

Soon ‘49ers from around the world would rush Brannan’s store for gold-digging equipment.

Brannan had bought the pans for $0.20 a piece, sold them for $15.00 each, took the profits from his store, invested in Real Estate — and became California’s first millionaire.

The Moral of this Story? Be the One With the Tools and Learn the Dark Arts of Marketing

The real gold of the $75K=Happiness story is the idea that there is cognitive bias behind it all. Why?

Because we need to understand cognitive biases and hueristics, like “anchoring” exist in the world.

We must understand these concepts. We must understand that they can exist to such an extent that they influence our dreams and personal life satisfaction.

In a world of marketing and marketers, we should teach our children the huersitics that Kahneman wrote about in his 2012 book, “Thinking Fast and Slow.

We should make every American study Robert Cialdini who wrote about the dark arts of marketing in his books “Influence” and “Pre-Suasion.”

If we can learn these tools of influence, perhaps we can use them to tangibly increase our happiness, like say, at our next contract negotiation?

Remember what the Gandhi study taught us: If you want to “be the change you wish to see in the world” — it helps to have a little extra money in your pocket.

Thanks for reading, and please leave a Billion claps ;)

Pattern recognition is the task of the Artist. This is the pattern recognition you’re looking for.

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