13th June 2024

I like the concept of convergence — these uncommon occasions when a number of tales about very totally different points appear to all land on the identical “Grand Fact,” albeit from very totally different views. Yesterday introduced simply such a three-part convergence into focus. It’s about cash and happiness, which could be very a lot the intersection of the place I spend a lot of my time: Capital Markets, and Behavioral Finance.

Think about three points: Does cash make you happier, and in that case, why? Extra particularly, does every extra greenback you purchase add to your pleasure, and by how a lot? The place is the ceiling? Does everybody expertise this the identical manner?

Second, who on the earth of finance made a butt-load of cash final 12 months? We have now the receipts, with names and {dollars} included.

And final, why does the world’s richest man appear so depressing?

Let’s bounce proper into it:

1. Cash and Happiness: The 4-word query “Does cash purchase happiness?” is basically asking the unsuitable factor. Like a lot else within the finance world, it requires context and just a little nuance. Clearly, should you had been hungry, missing safety, well being care, a roof over your head, and different primary wants, you wouldn’t be particularly blissful. No less than, not in society as we all know it at this time.1

Maybe a greater query is framed as “What’s the worth of cash past its primary utility for survival? The place do the legal guidelines of diminishing returns kick in? The place is the road the place every extra $X {dollars} creates little or no enhance in happiness or life satisfaction?” 2

Bloomberg reviews on analysis that discovered “Contentedness does enhance steadily consistent with incomes and even accelerates as pay rises past $100,000 a 12 months — so long as the particular person enjoys a sure baseline stage of happiness to start with.”

That’s solely a part of the twist revealed by the newest analysis: “There’s a plateau, however solely among the many unhappiest 20% of individuals, and solely then after they begin incomes over $100,000.” (emphasis added)

This means that your outlook and character are maybe extra determinative of your particular person happiness ranges than we might have beforehand believed. The analysis (which Danny Kahneman collaborated with) contradicts a 2010 paper by Danny Kahneman and economist Angus Deaton, which discovered happiness “plateaus” between $60,000 and $90,000 a 12 months.3

So cash should purchase some happiness, however solely up to some extent round $500okay, except you might be a type of unfortunate sad folks that peak round $100okay. All of which suggests it’s nowhere close to as clear or easy as we beforehand imagined.

2. The Wealthy Record: The 22nd annual Wealthy Record, put out by Institutional Investor, was additionally printed yesterday. They describe it as “the definitive rating of the 25 highest-earning hedge fund managers, based mostly on a mixture of charge earnings and good points on their very own capital.”

The {dollars} are pretty astounding: “Altogether, the highest 25 made $21.5 billion in 2022, making final 12 months’s whole the third highest, after 2020 and 2021. This works out to a median of about $860 million every.”

Right here is the highest 10 of the listing:

Institutional Investor’s 22nd annual Wealthy Record
1. $4.1 Billion Kenneth Griffin, Citadel
2. $3.2 Billion, Israel (Izzy) Englander. Millennium Administration
3. $1.9 Billion, Steven Cohen, Level72 Asset Administration
4. $1.2 Billion, David Tepper, Appaloosa Administration
5. $1.1 Billion, James Simons, Renaissance Applied sciences
6. $1 Billion (Tie), John Overdeck, Two Sigma Investments
6. $1 Billion (Tie), David Siegel, Two Sigma Investments
8. $900 Million (Tie), Ray Dalio, Bridgewater Associates
8. $900 Million (Tie), $900 Million, David Shaw, D.E. Shaw Group
10. $875 Million, Mentioned Haidar, Haidar Capital Administration

A few of these annual figures appear like lifetime earnings from a previous technology of the highest 0.001%. No phrase if all of those {dollars} made these of us any happier, however I can let you know that from my observations, Steve Cohen is having fun with being the proprietor of the New York Mets.

3. The World’s Richest Man is an Sad Particular person:

As if anybody wants proof that the legislation of diminishing returns applies to cash additionally, contemplate this dialogue by my Bloomberg colleague Matt Levine discussing the world’s richest man and his try to search out some pleasure.

It isn’t going properly:

“I’ve to say, no person makes being a billionaire look much less enjoyable than Elon Musk. He’s the richest particular person on the earth! He determined to purchase his favourite toy to make it extra carefully align along with his preferences, so he did that, and it labored! And but it appears depressing daily.”

Elon appears to have made a collection of disastrous selections, and which may be the supply of his unhappiness. His Twitter adventures appear to be hurting Tesla, his major supply of wealth. Perhaps that’s the problem.

Or not, I don’t know…


One last thought: I grew up poor, I’ve been working since I used to be 12, and have very particular recollections of all of the issues I couldn’t do or purchase as a result of we couldn’t afford them. And whereas they could have made me briefly sad or envious or pissed off, additionally they motivated me to work my ass off so cash was not going to be a limiting consider my decision-making about life.

Perhaps unhappiness results in happiness…

What if Dunning Kruger Explains Every part? February 27, 2023)

Get Your self Some “No Males” (December 19, 2022)

Wealth Distribution Evaluation (July 18, 2019)

Earnings and emotional well-being: A battle resolved
Matthew A. Killingsworth, Daniel Kahneman, and Barbara Mellers
PNAS, March 1, 2023
(Full paper PDF)

The Wealthy Record: The 22nd Annual Rating of the Highest-Incomes Hedge Fund Managers
By Stephen Taub
Institutional Investor, March 07, 2023

It Turns Out Cash Does Purchase Happiness, At Least As much as $500,000
By Conrad Quilty-Harper
Bloomberg, March 7, 2023

Elon Musk’s bodyguards
By Matt Levine
Bloomberg, March 7, 2023

Cash issues to happiness—maybe greater than beforehand thought
By Michele W. Berger
Penn Right now, January 18, 2021

Excessive earnings improves analysis of life however not emotional well-being
by Daniel Kahneman and Angus Deaton
PNAS, August 4, 2010


1. I’m sure we will think about many eventualities the place we stay in a tropical paradise with no worries and no cash. For our functions, I’m describing the world most of us inhabit at this time.

2. There’s a wholly totally different query of “How can we outline Happiness?”  Is it the deeper life satisfaction and contentedness or is it the extra ephemeral emotion of happiness?

3. Essentially the most Danny-Kahneman-like facet of this new analysis paper is that it’s described as an “adversarial collaboration” the place Kahneman re-analyzes his prior work to reconcile his prior findings with newer analysis and knowledge. He admits his error as an exception to the broader work. It is filled with the attraction and sophistication we take with no consideration from Kahneman.

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