The Easterlin Paradox, named after economist Richard Easterlin, addresses the relationship between happiness and income. First, the expected part: there is a positive relationship between the real income of people and their happiness – both among countries and within countries. In other words, the richer are happier.
But when it comes to changes in income or living standard as a function of time, happiness tends to remain flat. For example, the real (inflation-adjusted) per capita GDP of the United States was $25,083 in 1972, which became more than doubled ($56,000) by 2018. Yet, the Percentage of people who responded “very happy” was 30% in 1972 and 32% in 2918, and “pretty happy” moved from 53% to 57% in the General Social Survey. Also, the proportion of people who felt their financial situation changed for better or worse remained the same.
The contradiction in the relationship at a point in time vs as a function of time is the essence of this paradox. A possible explanation lies in the argument that the happiness of one arises from comparison with the other. So, even when the whole society moves up richer, if the individual sees no differential growth of their wealth compared to the neighbour, she could feel no increase in happiness. Another explanation is how fast people get used to wealth, and marginal values no longer give the same thrill – some form of diminishing marginal utility.
References
The General Social Survey: GSS
Real gross domestic product per capita: FRED
Easterlin paradox: Wiki
