There is not much happiness to be gained from car consumption when taking into account other happiness predictors. Especially junk cars ($0–5k) are not contributing much to happiness. The optimal car consumption price range is somewhere between $15 and 35k. This is a wide range. Arguably, results would differ by life circumstances or household characteristics—for instance indebtedness, proximity to workplace, occupation, and so forth—we leave it for the future research to explore it further. We find that there is no gain in happiness due to the consumption of luxury cars (>$35k) over good frugal cars ($15–35k), and if anything people consuming luxury cars are less happy than those consuming good frugal cars controlling for income and other happiness predictors. As suggested above, there are many explanations, but possibly the most convincing one is that of time loss. Again, a middle-class consumer (hourly wage after tax at $10) who purchases a luxury car over a frugal car looses one year of time (assuming a 40-h work week, excluding weekends and holidays) to earn the additional $25k required to upgrade to a luxury car.

Fundamentally, it appears that we are about to witness or perhaps we have already witnessed with the 2008 financial crisis, the beginning of the end of consumerism era (again, in that year also car penetration of the US market peaked). There may be a cultural shift happening also with respect to cars—for instance, more people may be deciding that they do not really need a car.Footnote 25 For a general discussion of a possible end of the consumerist era, see Ivanova (2011). Finally, keep in mind sustainability and environment. Not only luxury cars do not bring about more happiness than frugal cars, but they also pollute more (especially large SUVs), and this is another argument against luxury cars.

All this begs a question: If luxury cars don’t make us happy, why do we buy them? One answer was suggested earlier—we buy them for other reasons—pride, prestige, power or superiority demonstration, and so forth. But there is also the happiness miscalculation explanation. A useful concept of expected v experienced utility (Kahneman et al. 1997) helps to illustrate it in Fig. 1. We decide on much of our consumption (cars, houses, etc.) and income (how hard and how long to work) based on the expected utility (or happiness)—and we are often (predictably) wrong—we think that higher income and consumption will make us happier than they actually do.

Fig. 1 Expected versus experienced utility (or happiness). We make decision about income (or consumption) based on expected or decision happiness, but the experienced or true happiness is lower when we achieve greater income or consumption Full size image

Another explanation given by Frank (2004, 2012) is that people tend to think mistakenly that they can outcompete others and do not realize that status or positional or luxury consumption is, by definition, a constant struggle that cannot be won. Positional goods improve happiness not because they are useful, but because they secure a better position in a society. But for there to be winners, there have to be losers, so the pie does not grow and society as a whole is not better off with more luxury cars. Yet another explanation is, as Galbraith has argued, that marketing or advertising makes people buy things (e.g., luxury cars) that they do not need (Dutt 2008).

A related puzzle is that humans have always wasted money on conspicuous consumption—not only post-Enlightenment Veblen’s observations, but also, for instance, in ancient times, there is some condemnation of wasteful consumption as reported in the Bible. Likewise, there always have been smart voices to stop it, and probably forever will—perhaps, the fundamental problem with conspicuous consumption is that it signals status, power, superiority, and these attributes will always be sought after. Hence, while there may be a cultural shift happening away from luxury consumption as speculated above, significant luxury consumption may stay with us forever.

Although we do not explore this further here, perhaps, luxury consumption is one explanation for the Easterlin ParadoxFootnote 26—that despite increase in income, we are not happier—maybe we simply spend our money unwisely—if we spend it on bowling or fishing, we could have been happier than wasting it on Lexuses and Audis.

There are limitations, and at the same time directions for future research. First, causality can be addressed when more waves of data become available. Second, one can think of a quasi-experimental design—for instance, taking advantage of situations where a car is donated, inherited, or won in some lottery. Finally, it would be interesting to explore this relationship in other countries—Americans after all are in many ways exceptional. There exist good quality panel surveys containing happiness indicator, and possibly car information in other countries—for instance the German Socio-Economic Panel (GSOEP), and the British Household Panel Survey (BHPS). The present study examines the relationship in the US, where there is much of conspicuous consumption, inequality, and luxury cars. Also, authors live in the USA and are familiar with cars there. Yet, the advantage of other long-running panel datasets such as GSOEP or BHPS is that happiness can be modeled as a panel. This is important—the car is a proxy for values and preferences, maybe even personality, and hence, it may be other attributes of persons that correlate with the car that are responsible for its spurious effect on happiness. An important limitation in studies of luxury or conspicuous consumption is that of reverse causality as pointed out by Linssen et al. (2011)—people may consume luxuries because they are unhappy in the first place. Luxury shopping can arguably lighten up a day. Future research should explore reverse causality. Yet again, as persuasively pointed out by labor economist Andrew Oswald (e.g., Blanchflower and Oswald 2011; Oswald 2014), correlational studies are not without merit despite what many economists think—many scientific breakthroughs were first discovered in observational studies.

Conceptually, there are perhaps two key limitations. The first limitation is only apparent and arguably does not hold. It may appear that a car is like the other consumption goods, say a computer or a piece of furniture, and as such it may have a very short-lived and negligent effect on our happiness, because we consume so many of different items every day. Car is different, however. Keep in mind that the car is the second most expensive item most people buy in their lifetime, and an average person has to work for a year to earn it (a new medium-priced car)—it surely should increase happiness. But perhaps we consume so much that no single item, even a car, makes us happy any more. Perhaps, a person purchasing a Model T or a luxury car a century ago was happy. It may be so, but it does not change the fact that today there is little happiness from car consumption and no extra happiness from luxury car consumption. The second conceptual limitation is more serious. The high price of a car is only one indicator of luxury or conspicuous consumption. Luxury consumption can be defined in relative terms—for instance, a medium-priced Chevrolet Camaro or Ford Mustang could be categorized as luxury and conspicuous for working or even middle-class consumers. On the other hand, an expensive Porsche would be conspicuous or luxury for upper middle-class consumers, but Camaro or Mustang may not be conspicuous or luxury for them. This is a similar consideration to one discussed earlier that the richer the person, the less damaging and wasteful for that person luxury consumption is. Likewise, there are many poor people buying cars they cannot afford, and these cars are not necessarily very expensive. Finally, there can be luxury and conspicuous cars that are inexpensive—old Lexuses or Porsches, or frugal cars with extra conspicuous features such as rare animal leather seats. These limitations are also directions for future research.

As most happiness research (including and following that of Bentham), this study ignores the fact that pleasures or happiness derived from different experiences are arguably qualitatively different—clearly happiness from driving a Lexus is different from that of having a child or eating a great hamburger, not only in intensity or level but also in quality. For some discussion of this important limitation, see Nussbaum (2012). There is, however, not much that can be done to alleviate this limitation using large scale surveys. Perhaps, a qualitative study such as a case study could shed additional light on this aspect of car consumption.

Most happiness studies lump together cognitive and affective aspects of happiness as we do here—one reason to do it is the lack of detailed multiple measures of a construct, and usually it is not a critical problem. It would be useful to distinguish between these two concepts with respect to luxury consumption. Perhaps, luxury consumption affects more happiness (affect) than life satisfaction (cognition). On the other hand, luxury consumption may also impact life satisfaction (cognition) by signaling accomplishment.

There are policy implications. As suggested here, many consumers, especially those with limited resources, may be better off not purchasing luxury cars. A straightforward way to improve consumption is for consumers to think critically about reasons for their purchases. Another solution to overconsumption of luxuries is a luxury tax. A similar measure is an increased personal income tax and redistribution. Piketty et al. (2011) have recently calculated that we can tax the rich as high as 80 % and they will be fine and continue to work hard—it won’t kill the goose lying golden eggs. On the other hand, as argued earlier, the higher the income, the less of a problem luxury consumption is for a consumer (not for society), because she needs to work less time to afford this waste (luxury consumption). In that sense, the richer you are, the less of a problem luxury consumption is for you. Increasing the gas tax has two advantages—it penalizes big and wasteful SUVs, and also penalizes driving a lot; a disadvantage is that it would disproportionately hurt the poor and middle class—the rich can afford it. Taxing luxury consumption would probably be the best solution. We do not advocate any of those solutions, but merely point out alternatives that could help people make better informed decisions, i.e., decisions that lead to greater happiness.

Again, a key problem with any luxury consumption is that it makes other people relatively deprived and results in consumption arms race (e.g., Frank 2012)—this is the reason for ridiculously expensive luxury cars that are severalfold as expensive as frugal cars without much substantive difference. For instance, both Toyota Corolla and Lexus IS have little substantive (technical) difference,Footnote 27 they are even both made by the same company, Toyota, which created the Lexus so that it appears more exclusive and is not confused with the frugal Toyota, so that the price difference can be justified by buying a product that signifies that you are better than others. Most of the difference between two cars is fashion: e.g., colors and shapes. In short, as Veblen (2005a, b) observed a long time ago, such conspicuous consumption is a waste.