Income and emotional well-being: Evidence for well-being plateauing around $200,000 per year

Is emotional well-being monotonically increasing in the level of income or does it reach a plateau at some income threshold, whereafter additional income does not contribute to further well-being? Conflicting answers to this question has been suggested in the academic literature. In a recent paper, using an income threshold of $100,000peryear,Killingsworthetal\mathrm{.}(2023)appearstohaveresolvedtheseconflicts,concludingthatemotionalwell-beingismonotonicallyincreasinginincomeforallbuttheunhappiestindividuals\mathrm{.}Inthispaper,weshowthatthisconclusionissensitivetotheplacementoftheincomethresholdatwhichtherelationshipbetweenemotionalwell-beingandincomeisallowedtoplateau\mathrm{.}Usingstandardeconometricmethods,weproposeadata-drivenapproachtodetecttheplacementofthethreshold\mathrm{.}Usingthisdata-drivenincomethreshold,aflatrelationshipbetweenhouseholdincomeandemotionalwell-beingaboveathresholdaround$200,000 per year is found. While our analysis relaxes the assumption of a pre-specified income threshold, it relies on a number of other assumptions, which we briefly discuss. We conclude that although the analysis of this paper provides some evidence for well-being plateauing around $200,000 per year, more research is needed before any definite conclusions about the relationship between emotional well-being and income can be drawn.