Does living in California make people happy?

No, but people in the Midwest assumed Californians were happier. It’s a focusing illusion: visible differences (weather, etc) are given more weight by outsiders than people who experience them first-hand:

Large samples of students in the Midwest and in Southern California rated satisfaction with life overall as well as with various aspects of life, for either themselves or someone similar to themselves in one of the two regions. Self-reported overall life satisfaction was the same in both regions, but participants who rated a similar other expected Californians to be more satisfied than Midwesterners. Climate-related aspects were rated as more important for someone living in another region than for someone in one’s own region. Mediation analyses showed that satisfaction with climate and with cultural opportunities accounted for the higher overall life satisfaction predicted for Californians. Judgments of life satisfaction in a different location are susceptible to a focusing illusion: Easily observed and distinctive differences between locations are given more weight in such judgments than they will have in reality.

Source: “Does Living in California Make People Happy? A Focusing Illusion in Judgments of Life Satisfaction” from Psychological Science

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