Easterlin paradox

The Easterlin paradox is a concept in happiness economics. It is named for the economist Richard Easterlin, who suggested that a higher level of a country's per capita gross domestic product did not correlate with greater self-reported levels of happiness among citizens of a country, in contrast with people inside a country. Later research has questioned whether Easterlin's conclusions about the non-correlation were accurate.

Easterlin, a professor of economics at the University of Southern California, first argued in 1974 that while within a given country people with higher incomes were more likely to report being happy, this would not hold at a national level, creating an apparent paradox. He reported data that showed that reported happiness was not significantly associated with per capita GDP, among developed nations. Examining trends within nations, he suggested that the increase in income in the United States between 1946 and 1970 contrasted with flat levels of reported happiness, and declines between 1960 and 1970. These claimed differences between nation-level and person-level results fostered an ongoing body of research and debate.

The theory was examined by Andrew Oswald of the University of Warwick in 1997.

In 2003, Ruut Veenhoven published an analysis based on various sources of data, and concluded that there was no paradox, and countries did indeed get happier with increasing income. In a reply in 2005, Easterlin maintained his position, suggesting that his critics were using inadequate data.

In 2008, economists Betsey Stevenson and Justin Wolfers, both of the University of Pennsylvania, published a reassessment of the Easterlin paradox using new time-series data. They concluded like Veenhoven et al. that, contrary to Easterlin's claim, increases in absolute income were linked to increased self-reported happiness, for both individual people and whole countries. They found a statistical relationship between happiness and the logarithm of absolute income, suggesting that happiness increased more slowly than income, but no "satiation point" was ever reached. The study provided evidence that absolute income, in addition to relative income, determined happiness. This is in contrast to an extreme understanding of the hedonic treadmill theory where "keeping up with the Joneses" is the only determinant of behavior.

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