Choosing money

This excellent piece by Jamie Whyte contains a passage that needs unbundling. It's this:

I know bankers who work very hard and earn a lot of money. They know that more wealth will not increase their happiness as much as more leisure would. Nevertheless, they keep working. They prefer money to happiness.

How can we explain this behaviour? I reckon there are five different possibilities.
1. Revealed preference. The fact that they work long hours shows that they prefer money to leisure. For them, money does make them happier. Sure, this isn't true of everyone. But people have different utility functions. It's a howling fallacy to beleive that what's true of the average is true of all.
2. Intertemporal substitution. In working long hours, bankers aren't maximizing happiness this week or this year, but rather lifetime happiness. They work hard in the hope of retiring early.
3. Youth. Younger people have reasons for preferring work to leisure. They have the energy to get up early, so the marginal disutility of work is lower. And the marginal utility of income is higher - say because they've got debts to pay, or because they get more of a buzz from fancy cars and clothes than older folk get. As Jamie's banking friends get older, many will downshift, just as I did.
4. Corner solution. For bankers, the choice of working hours is simple - it's 80 hours a week or none. They just don't have the choice of trading off a few hours lesiure for less income. They are forced to a corner solution.
5. The ambiguity of happiness. Bankers love the challenge of their job, and the sense of fulfillment it brings. This fulfillment is not "happiness" in the sense of easy pleasure, but it is - for them - a deeper happiness. For this reason, I'm not happy when Jamie says that some academics have "sacrificed happiness for discovery." Could it not be that, for them, the greatest happiness lies in discovering things?
You can argue the toss about the relative importance of these five factors. What's important, though, is that none entail any irrationality on the part of bankers. And only point 4 even hints at any case for state intervention.
The lesson for me is the one Jamie gives.  Give people freedom, and they'll get as much happiness - in the sense that they define it themselves - as they want.

Comments

[Piyush Pant]

Having money can also be an effective 'signal' for happiness and allows people to calibrate themselves against those in their peer group and beyond. Assuming an important aspect of happiness is its ability to be seen and perceived by others, the behaviour of bankers is totally rational.

[Curious]

Refreshing post.

An article about happiness and utility: http://culturefusion.blogspot.com/2005/10/happiness-and-utility.html

Happiness is relative, and as such, some individuals recognise their own happiness without the acknowledgement of others, but some people need the recognition of others to feel happy (as suggested by Piyush Pant above).

Looking at the statement: "...They know that more wealth will not increase their happiness as much as more leisure would. Nevertheless, they keep working. They prefer money to happiness."

I'd suggest that having vast amounts of money in the bank would fill some people with unfaltering happiness. This is because they're pleased with the knowledge that they have more and more at their disposal. Leisure doesn't come into it.

Some individuals may keep working just so their money can accumulate, deriving pleasure from this knowledge. There is no status quo.

[Andy]

I loved that story about the merchant bank which introduced paternity leave "to weed out the losers".