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 a 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.
Criticism and later research
In 2003, Ruut Veenhoven and Michael Hagerty 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.
In 2010, Easterlin published data from a sample of 37 countries reaffirming the paradox which was soon questioned by Wolfers. In a 2012 report prepared for the United Nations, Richard Layard, Andrew Clark and Claudia Senik point out that other variables co-vary with wealth, including social trust, and that these, and not income, may drive much of the association of GDP per capita with well-being.
In 2015, psychologists Thomas Gilovich and Amit Kumar published a review which demonstrated that "experiential purchases (such as vacations, concerts, and meals out) tend to bring more lasting happiness than material purchases." They found this was because "Compared to possessions, experiences are less prone to hedonic adaptation".
Selin Kesebir, a professor at the London Business School, and Shigehiro Oishi, a professor at the University of Virginia, argued that inequality mitigates against the effect that increased GDP may have on national happiness and could partially explain the paradox.
- Easterlin (1974). "Does Economic Growth Improve the Human Lot? Some Empirical Evidence" (PDF). In Paul A. David; Melvin W. Reder. Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz. New York: Academic Press, Inc.
- Diane J. Macunovich and Richard A. Easterlin, 2008 , "Easterlin hypothesis," The New Palgrave Dictionary of Economics, 2nd ed. Abstract.
• Andrew E. Clark; Paul Frijters; Michael A. Shields (2008). "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles" (PDF). Journal of Economic Literature. 46 (1): 95–144. doi:10.1257/jel.46.1.95.
- Oswald, A. (January 19, 2006). "The Hippies Were Right all Along about Happiness" (PDF). Financial Times.
- Hagerty, M. R.; Veenhoven, R. (2003). "Wealth and Happiness Revisited – Growing National Income Does Go with Greater Happiness". Social Indicators Research. 64: 1–27. doi:10.1023/A:1024790530822.
- Easterlin, R. A. (2005). "Feeding the Illusion of Growth and Happiness: A Reply to Hagerty and Veenhoven". Social Indicators Research. 74 (3): 429–443. doi:10.1007/s11205-004-6170-z.
- Stevenson, Betsey; Wolfers, Justin. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox". Brookings Papers on Economic Activity. 2008 (Spring): 1–87. JSTOR 27561613.
- Akst, Daniel (23 November 2008). "A talk with Betsey Stevenson and Justin Wolfers". The Boston Globe.
- Easterlin, R. A.; McVey, L. A.; Switek, M.; Sawangfa, O.; Zweig, J. S. (2010). "The happiness-income paradox revisited". Proceedings of the National Academy of Sciences. 107 (52): 22463–22468. doi:10.1073/pnas.1015962107.
- Alok Jha (13 December 2010). "Happiness doesn't increase with growing wealth of nations, finds study". The Guardian.
- Justin Wolfers (13 December 2010). "Debunking the Easterlin Paradox, Again". Freakonomics.com.
- Richard Layard; Andrew Clark; Claudia Senik (2 April 2012). "First World Happiness Report Launched at the United Nations" (Report). Earth Institute, Columbia University New York.
- Thomas Gilovich; Amit Kumar (2015). "We'll Always Have Paris: The Hedonic Payoff from Experiential and Material Investments". Chapter Four – Advances in Experimental Social Psychology (PDF). 51. Elsevier Inc. pp. 147–187. doi:10.1016/bs.aesp.2014.10.002. ISSN 0065-2601.
- "When Economic Growth Doesn't Make Countries Happier". Harvard Business Review. Retrieved 2016-12-09.
- Cohen, Nick (January 28, 2007). "It's experts that make us miserable". The Guardian.
- Stokes, Bruce (July 24, 2007). "Happiness Is Increasing in Many Countries -- But Why?". Pew Global.
- Leonhardt, David (16 April 2008). "Maybe Money Does Buy Happiness After All". The New York Times.
- Nasser, Abdullah (Nov 2012). "Can Money Buy Happiness? A macroeconomic multinational perspective on the Easterlin Paradox". THURJ. 40 (9).