Journal of Happiness Studies

, Volume 9, Issue 2, pp 303–315 | Cite as

The paradox of happiness: towards an alternative explanation

  • Stavros A. DrakopoulosEmail author
Research paper


There is a common empirical finding in many countries that substantial increases in real per capita income do not correspond to equivalent increases of individual happiness. These findings have puzzled many economists that some have called the “paradox of happiness”. There have been a number of explanations regarding this paradox. This paper attempts to tackle the paradox of happiness by employing the idea of hierarchical choice. The hierarchical approach implies that there are some basic human needs which must be satisfied before non-basic needs come into the picture. The paper argues that the hierarchical structure of needs implies that the satisfaction of basic needs provides substantial increases to individual happiness compared to the subsequent satisfaction of secondary needs. This might also be an alternative explanation of empirical findings showing a positive relationship between income and happiness up to certain level of income. It can also be combined with existing explanations of the paradox and thus enhance our understanding of the issue.


Happiness paradox Human needs Hierarchy 

JEL classification



  1. Alderfer, C. (1969). An empirical test of a new theory of human needs. Organizational Behavior and Human Performance, 4, 142–175.CrossRefGoogle Scholar
  2. Alesina, A., Di Tella, R., & Mac Culloch, R. (2004). Inequality and happiness. Journal of Public Economics, 88, 2009–2042.CrossRefGoogle Scholar
  3. Andrews, F. (1991). Stability and change in levels and structure of subjective well-being: USA 1972 and 1988. Social Indicators Research, 25, 1–30.CrossRefGoogle Scholar
  4. Ardrey, R. (1970). The social contract. New York: Dell.Google Scholar
  5. Ash, C. (2000). Social self-interest. Annals of Public and Cooperative Economics, 72, 261–284.CrossRefGoogle Scholar
  6. Baltas, G. (2001). Utility-consistent brand demand systems with endogenous category consumption: Principles and marketing applications. Decision Sciences, 32, 399–421.CrossRefGoogle Scholar
  7. Biswas-Diener, R., & Diener, E. (2001). Making the best of a bad situation: Satisfaction in the slums of Calcutta. Social Indicators Research, 55, 329–352.CrossRefGoogle Scholar
  8. Bjornskov, C. (2003). The Happy few: Cross-Country evidence on social capital and life satisfaction. Kyklos, 56, 3–16.CrossRefGoogle Scholar
  9. Blanchflower, D., & Oswald, A. (2004). Well-being over time in Britain and the US. Journal of Public Economics, 88, 1359–1386.CrossRefGoogle Scholar
  10. Borch, K. (1968). The Economics of Uncertainty. Princeton: Princeton University Press.Google Scholar
  11. Bruni, L. (2002). A history of happiness in economics. Paper presented to the European Society for the History of Economic Thought Conference, Crete.Google Scholar
  12. Bruni, L. (2004a). The “technology of happiness” and the tradition of economic science. Journal of the History of Economic Thought, 26, 19–44.CrossRefGoogle Scholar
  13. Bruni, L. (2004b). The ‘happiness transformation problem’ in the Cambridge tradition. European Journal of the History of Economic Thought, 11, 431–451.CrossRefGoogle Scholar
  14. Canova, L., Rattazzi, A., & Webley, P. (2005). The hierarchical structure of saving motives. Journal of Economic Psychology, 26, 21–37.CrossRefGoogle Scholar
  15. Canterbery, R. (1979). Inflation, necessities and distributive efficiency. In J. Gapinski & C. Rockwoodn (Eds.), Essays in Post-Keynesian Inflation. Cambridge, Mass: Ballinger.Google Scholar
  16. Chipman, J. (1971). On the lexicographic presentation of preference orderings. In Chipman et al. (Eds.), Preferences, utility and demand. New York: Harcourt and Brace Jovanovich.Google Scholar
  17. Clark, A. (2003). Unemployment as a social norm: Psychological evidence from panel data. Journal of Labor Economics, 21, 323–351.CrossRefGoogle Scholar
  18. Clark, A., & Oswald, A. (1996). Satisfaction and comparison income. Journal of Public Economics, 61, 359–381.CrossRefGoogle Scholar
  19. Cummins, R. (2003). Normative life satisfaction: measurement issues and a homeostatic model. Social Indicators Research, 64, 225–256.CrossRefGoogle Scholar
  20. Day, R. (1971). Rational choice and economic behaviour. Theory and Decision, 1, 229–251.CrossRefGoogle Scholar
  21. Deci, E., & Ryan, R. (2000). ‘The ‘what’ and ‘why’ of goal pursuits: Human needs and the self-determination of behavior. Psychological Inquiry, 11, 227–268.CrossRefGoogle Scholar
  22. Doyal, L., & Gough, I. (1984). A theory of human needs. Critical Social Policy, 10, 6–38.CrossRefGoogle Scholar
  23. Drakopoulos, S. (1991). Values and economic theory: The case of hedonism. Aldeshot: Avebury.Google Scholar
  24. Drakopoulos, S. (1992). Psychological thresholds, demand and price rigidity. Manchester School, LX, 152–168.Google Scholar
  25. Drakopoulos, S. (1994). Hierarchical choice in economics. Journal of Economic Surveys, 8, 133–153.CrossRefGoogle Scholar
  26. Drakopoulos, S., & Karayiannis, A. (2004). The historical development of hierarchical behaviour in economic thought. Journal of the History of Economic Thought, 26, 363–378.CrossRefGoogle Scholar
  27. Drakopoulos, S., & Karayiannis, A. (2007). Human needs hierarchy and Happiness: Evidence from the late pre-classical and classical economics. In L. Bruni & P. L. Porta (Eds.), Handbook on the Economics of Happiness. Chentenham, UK: Edward Elgar.Google Scholar
  28. Drakopoulos, S., & Theodossiou, I. (1997). Job Satisfaction and Target Earnings. Journal of Economic Psychology, 18, 694–704.CrossRefGoogle Scholar
  29. Duesenbery, J. (1949). Income, saving, and the theory of consumer behavior. Cambridge, Mass: Harvard University Press.Google Scholar
  30. Earl, P. (1986). Lifestyle economics. Brighton: Wheatsheaf Books.Google Scholar
  31. Easterlin, R. (1974). Does economic growth improve the human lot? Some empirical evidence. In P. David & M. Reder (Eds.), Nations and households in economic growth: Essays in honor of Moses Abramovitz. New York: Academic Press.Google Scholar
  32. Easterlin, R. (1995). Will raising the incomes of all increase the happiness of all? Journal of Economic Behaviour and Organization, 27, 35–47.CrossRefGoogle Scholar
  33. Easterlin, R. (2001). Income and happiness: Towards a unified theory. Economic Journal, 111, 465–484.CrossRefGoogle Scholar
  34. Ehrhardt, J., Saris, W., & Veenhoven, R. (2000). Stability and life satisfaction over time. Journal of Happiness Studies, 1, 177–205.CrossRefGoogle Scholar
  35. Elster, J. (1998). Emotions and economic theory. Journal of Economic Literature, 36, 47–74.Google Scholar
  36. Encarnacion, J. (1964). A Note on Lexicographical Preferences. Econometrica, 32(1–2), 215–217.CrossRefGoogle Scholar
  37. Falkinger, J. (1990). On growth along a hierarchy of wants. Metroeconomica, 3, 209–233.CrossRefGoogle Scholar
  38. Ferrer-i-Carbonell, A. (2005). Income and well-being: an empirical analysis of the comparison income effect. Journal of Public Economics, 89, 997–1019.CrossRefGoogle Scholar
  39. Ferrer-i-Carbonell, A., & Frijetrs, P. (2004). How important is methodology for the estimates of the determinants of happiness? Economic Journal, 114, 641–659.CrossRefGoogle Scholar
  40. Frank, R. (1985). Choosing the Right Pond. New York: Oxford University Press.Google Scholar
  41. Frank, R. (1997). The frame of reference as a public good. Economic Journal, 107, 1832–1847.CrossRefGoogle Scholar
  42. Frank, R. (1999). Luxury fever. New York: The Free Press.Google Scholar
  43. Frey, B., & Stutzer, A. (2000). Happiness, economy and institutions. Economic Journal, 110, 918–938.CrossRefGoogle Scholar
  44. Frey, B., & Stutzer, A. (2002a). What economists can learn from happiness research? Journal of Economic Literature, XL, 402–435.CrossRefGoogle Scholar
  45. Frey, B., & Stutzer, A. (2002b). Happiness and economics. Princeton: Princeton University Press.Google Scholar
  46. Gasper, D. (2005). Subjective and objective well-being in relation to economic inputs: puzzles and responses. Review of Social Economy, 63, 177–206.CrossRefGoogle Scholar
  47. Georgescu-Roegen, N (1966). Analytical economics. Cambridge: Cambridge University Press.Google Scholar
  48. Ger, G., & Belk, R. (1996). Cross-cultural differences in materialism. Journal of Economic Psychology, 17, 55–77.CrossRefGoogle Scholar
  49. Gorman, W. (1971). Preference, revealed preference and indifference. In J. Chipman et al. (Eds.), Preferences, utility and demand. New York: Harcourt and Brace Jovanovich.Google Scholar
  50. Gui, B. (2000). Beyond transaction: on the interpersonal dimension of economic reality. Annals of Public and Cooperative Economics, 71, 139–168.CrossRefGoogle Scholar
  51. Hagerty M., & Veenhoven, R. (2003). Wealth and happiness revisited: growing national income does go with greater happiness. Social Indicators Research, 64, 1–27.CrossRefGoogle Scholar
  52. Helliwell, J. (2003). How’s life? Combining individual and national variables to explain subjective well-being. Economic Modelling, 20, 331–360.CrossRefGoogle Scholar
  53. Inglehart, R. (1990). Cultural shift in advanced industrial society. Princeton: Princeton University Press.Google Scholar
  54. Inglehart, R., & Rabier, J. (1986). Aspirations adapt to situations. In F. Andrews (Ed.), Research on the quality of life (pp. 1–56). Ann Arbour, MI: University of Michigan.Google Scholar
  55. Jackson, T., & Marks, N. (1999). Consumption, sustainable welfare and human needs–with reference to UK expenditure patterns between 1954 and 1994. Ecological Economics, 28(1999), 421–441.CrossRefGoogle Scholar
  56. Kahneman, D., Wakker, P., & Sarin, R. (1997). Back to Bentham? Explorations of experienced utility. Quarterly Journal of Economics, 112, 375–405.CrossRefGoogle Scholar
  57. Kenny, C. (1999). Does growth cause happiness or does happiness cause growth? Kyklos, 52, 3–26.CrossRefGoogle Scholar
  58. Keynes, J. (1973). The general theory of employment, interest and money. London: Macmillan.Google Scholar
  59. Lane, R. (2000). The loss of happiness in the market democracies. Yale: Yale University Press.Google Scholar
  60. Lavoie, M. (2004). Post-Keynesian consumer theory: Potential synergies in consumer research and economic psychology. Journal of Economic Psychology, 25, 639–649.CrossRefGoogle Scholar
  61. Layard, R. (2005). Happiness. New York: The Penguin Press.Google Scholar
  62. Levi, I. (1986). Hard choices. Cambridge: Cambridge University Press.Google Scholar
  63. Little, I.M.D. (1957). A critique of welfare economics. Oxford: Clarendon Press.Google Scholar
  64. Lluch, C. (1973). The extended linear expenditure system. European Economic Review, 4, 21–32.CrossRefGoogle Scholar
  65. Lluch, C., Powell, A., & Ross, A. (1977). Patterns in household demand and saving. Oxford: Oxford University Press.Google Scholar
  66. Locke, E. A. (1976). The nature and causes of job satisfaction. In M. Dunnette (Ed.), Handbook of Industrial and Organizational Psychology. Chicago: Rand McNally.Google Scholar
  67. Loewenstein, G. (1999). Because it is there: the challenge of mountaineering...for utility theory. Kyklos, 52, 315–343.CrossRefGoogle Scholar
  68. Lommerud, K. (1989). Educational subsidies when relative income matters, Oxford Economic Papers, 41, 640–652.Google Scholar
  69. Maddison, A. (1991). Dynamic forces in capitalist development. Oxford: Oxford University Press.Google Scholar
  70. Maslow, A. (1954). Motivation and personality. New York: Harper and Row.Google Scholar
  71. Mason, R. (1998). The economics of conspicuous consumption: Theory and thought since 1700. Cheltenham: Edward Elgar.Google Scholar
  72. Max-Neef, M. (1995). Economic growth and quality of life–a threshold hypothesis. Ecological Economics, 15, 115–118.CrossRefGoogle Scholar
  73. Myers, D., & Diener, E. (1995). Who is happy? Psychological Science, 6, 10–19.CrossRefGoogle Scholar
  74. Oswald, A. (1997). Happiness and economic performance. Economic Journal, 107, 1815–1831.CrossRefGoogle Scholar
  75. Pasinetti, L. (1981). Structural change and economic growth. Cambridge: Cambridge University Press.Google Scholar
  76. Phelps, C. (2001). A clue to the paradox of happiness. Journal of Economic Behaviour and Organization, 45, 293–300.CrossRefGoogle Scholar
  77. Pfouts, R. (2002). On the need for a more complete ontology of the consumer. In E. Fullbrook (Ed.), Intersubjectivity in Economics: Agents and Structures (pp. 71–84). London and New York: Routledge.Google Scholar
  78. Pugno, M. (2005). The happiness paradox: A formal explanation from psycho-economics. Paper presented in the 30th IAREP Conference, Prague.Google Scholar
  79. Putnam, R. (2000). Bowling alone. New York: Simon and Schuster.Google Scholar
  80. Rae, J. (1834). Statement of some new principles on the subject of political economy. New York: A.M.Kelley, 1964.Google Scholar
  81. Ratcliffe, J., Buxman, M., McGarry, T., Sheldon, R., & Chancellor, J. (2004). Patients preferences for characteristics associated with treatment for osteoarthritis. Rheumatology, 23, 337–345.Google Scholar
  82. Richins, M. (1995). Social comparison, advertising, and consumer discontent. American Behavioral Scientist, 38, 593–607.CrossRefGoogle Scholar
  83. Ryan, R., & Deci, E. (2000). Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being. American Psychologist, 55, 68–78.CrossRefGoogle Scholar
  84. Ryan, R., & Deci, E. (2001). On happiness and human potential: A Review of research on hedonic and eudaimonic well-being. Annual Review of Psychology, 52, 141–166.CrossRefGoogle Scholar
  85. Sato, K. (1972). Additive utility functions and double-log consumer demand functions. Journal of Political Economy, 80, 102–124.CrossRefGoogle Scholar
  86. Schor, J. (1991). The overworked American. NY: BasicBooks.Google Scholar
  87. Schwartz, B. (2000). Self-determination: the tyranny of freedom. American Psychologist, 55, 79–88.CrossRefGoogle Scholar
  88. Schwartz, B., Ward A., Monterosso, J., Lyubomirsky, S., White, K., & Lehman, D. (2002). Maximizing versus satisficing: Happiness is a matter of choice. Journal of Personality and Social Psychology, 83, 1178–1197.CrossRefGoogle Scholar
  89. Scitovsky, T. (1976). The joyless economy: An inquiry into human satisfaction and consumer dissatisfaction. Oxford: Oxford University Press.Google Scholar
  90. Scott, A. (2002). Identifying and analysing dominant preferences in discrete choice experiments: An application in health care. Journal of Economic Psychology, 23, 383–398.CrossRefGoogle Scholar
  91. Sousa-Poza, A., & Sousa-Poza, A. (2000). Taking another look at the gender/job-satisfaction paradox. Kyklos, 53, 135–152.CrossRefGoogle Scholar
  92. Stone, R. (1954). Linear expenditure systems and demand analysis. Economic Journal, 64, 511–527.CrossRefGoogle Scholar
  93. Sugden, R. (2002). Beyond sympathy and empathy: Adam Smith’s concept of fellow-feeling. Economics and Philosophy, 18, 63–87.Google Scholar
  94. Thiele, S., & Weiss, C. (2003). Consumer demand for food diversity: Evidence for Germany. Food Policy, 28, 99–115.CrossRefGoogle Scholar
  95. Tversky, A. (1969). Intransitivity of preferences. Psychological Review, 76, 31–48.CrossRefGoogle Scholar
  96. Veblen, T. (1899). The theory of the leisure class. New York: Prometheus Books.Google Scholar
  97. Veenhoven, R. (1991). Is happiness relative? Social Indicators Research, 24, 1–34.CrossRefGoogle Scholar
  98. Veenhoven, R. (2000). Freedom and happiness: A comparative study in forty-four nations in the early 1990s. In E. Diener, & E. Suh (Eds.), Culture and subjective well-being. Cambridge MA: MIT Press.Google Scholar
  99. Veenhoven, R. (2003). Wealth and happiness revisited: Growing national income does go with greater happiness. Social Indicators Research, 64, 1–27.CrossRefGoogle Scholar
  100. Waterman, A. (1993). Two conceptions of happiness: Contrasts of personal expressiveness (eudaimonia) and hedonic enjoyment. Journal of Personality and Social Psychology, 64, 678–691.CrossRefGoogle Scholar
  101. Wright, R. (2000). Nonzero: The logic of human destiny. New York: Pantheon Books.Google Scholar
  102. Xiao, J., & Noring, F (1994). Perceived saving motives and hierarchical financial needs. Financial Counseling and Planning, 5, 25–44.Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  1. 1.Department of Philosophy and History of ScienceUniversity of AthensAthensGreece

Personalised recommendations