Summary: Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions.

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Would You Be Happier If You Were Richer? A Focusing Illusion

Most people believe that they would be happier if they were richer, but survey evidence on subjective well-being is largely inconsistent with that belief. Subjective well-being is most commonly measured by questions that ask people, “All things considered, how satisfied are you with your life as a whole these days?” or “Taken all together, would you say that you are very happy, pretty happy, or not too happy?” Such questions elicit a global evaluation of one’s life. An alternative method asks people to report their feelings in real time, which yields a measure of experienced happiness.

Surveys in many countries conducted over decades indicate that, on average, reported global judgments of life satisfaction or happiness have not changed much over the last four decades, in spite of large increases in real income per capita. While reported life satisfaction and household income are positively correlated in a cross-section of people at a given time, increases in income have been found to have mainly a transitory effect on individuals’ reported life satisfaction. (1-3) Moreover, the correlation between income and subjective well-being is weaker when a measure of experienced happiness is used instead of a global measure. This article reviews recent evidence that helps interpret these observations. When people consider the impact of any single factor on their well-being — not only income — they are prone to exaggerate its importance; we refer to this tendency as the focusing illusion.

Income has even less effect on people’s moment-to-moment hedonic experiences than
on the judgment they make when asked to report their satisfaction with their life or overall happiness. These findings suggest that the standard survey questions by which subjective wellbeing is measured (mainly by asking respondents for a global judgment about their satisfaction or happiness with their life as a whole) may induce a form of focusing illusion, by drawing people’s attention to their relative standing in the distribution of material well-being. More importantly, the focusing illusion may be a source of error in significant decisions that people make.

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