Wealth and Happiness Revisited – Growing National Income Does Go with Greater Happiness

Abstract

``Will raising the incomes of all increase the happiness of all?'' Intuitionsays `yes' but theories of relative utility caution that the answer may be`no'. The theory of relative utility holds that people's happiness dependson income relative to others (social comparisons), or on income relative totheir own past income (adaptive expectations) – so that raising the incomes ofall may not increase average long-term happiness. In contrast, the theoryof absolute utility predicts that additional income allows each person to filladditional needs, thus increasing average long-term happiness.Previous tests among these theories have been plagued by low statisticalpower, which has been incorrectly interpreted as evidence against absoluteutility models. The current study improves statistical power by includinglonger time series, by adding nine nations with low GDP/capita and (in someanalyses) by pooling countries into income tiers. We also apply a dynamicmodel by Van Praag and Kapteyn (1973), which can estimate separate effectsfor social comparisons, adaptive expectations, and absolute utility theories.The results show no effect for social comparison across countries, but showsupport for partial adaptation to new income over a two-year period.Most importantly, increasing national income does go with increasingnational happiness, but the short-term effect on happiness is larger thanthe long-term effect for a given rise in income.