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Adaptation and the Easterlin Paradox

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Advances in Happiness Research

Part of the book series: Creative Economy ((CRE))

Abstract

The Easterlin paradox has captured a great deal of attention across social science. The fundamental question behind this paradox is whether income is associated with subjective well-being, where the latter is often measured by single-item questions on happiness or life satisfaction. The broad consensus that has been reached is that, within country, richer people are on average happier than poorer people, and that richer countries are on general happier than poorer countries. As such, the cross-section relationship between income and subjective well-being is positive.

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Notes

  1. 1.

    “an object at a given temperature may be experienced as hot or cold to the touch depending on the temperature to which one has adapted. The same principle applies to non-sensory attributes such as health, prestige and wealth” (Kahneman and Tversky 1979, p. 277)

  2. 2.

    The third wave of the European Social Survey is one of very few surveys which actually ask respondents about income comparisons. Respondents first answer how important it was for them to compare their income with other people’s incomes, and then whose income they would be most likely to compare their own with. The answers to the latter question were work colleagues, family members, friends, or others. Clark and Senik (2010) show that the majority of those who compare their incomes compare them to the income of their work colleagues.

  3. 3.

    If we believe that there is full adaptation to income, then none of the variables in the X vector should be determined by the individual’s financial situation.

  4. 4.

    The data here are cross-section, so we do not know if the lottery winners were happier than the control group before their winnings. The results show that the life satisfaction of winners is higher than that of non-winners, but not significantly so. One question is whether the difference would have been significant with a somewhat larger sample size. Recent work on the BHPS using panel data has certainly suggested a significant rise in well-being upon winning even relatively small sums on the lottery (Apouey and Clark 2015; Gardner and Oswald 2007).

  5. 5.

    Life satisfaction did not appear in the BHPS until Wave 6.

  6. 6.

    The same kind of analysis can also be carried out at the aggregate level. Di Tella et al. (2003) consider individual happiness in data from 12 European countries over 18 years, and argue that some of their results regarding the relationship of subjective well-being to GDP per capita show that “bursts of GDP produce temporarily higher happiness” (p. 817).

  7. 7.

    The preference for rising income profiles, given a total amount of income to be disbursed over a given period, is also consistent with adaptation to income: if past income acts as a deflator for current well-being then we would want to back-load it over time. See the hypothetical-choice results in Frank and Hutchens (1993) and Loewenstein and Sicherman (1991).

  8. 8.

    Which is different from the continuous variable set-up in Eq. 6.1, where individuals have both an income level now and an income level last year (i.e. they will have positive values for both Yit and Yit-1).

  9. 9.

    For example, Oesch and Lipps (2013) suggest that there is no evidence of adaptation to unemployment in either SOEP or SHP data. It would be useful to have a thorough discussion between economists and psychologists (and others) about the different ways in which we can model the time profile of well-being in panel data.

  10. 10.

    This work on adaptation compares subjective well-being after marriage to well-being before marriage (as in Eq. 6.2). It is likely that well-being was on an upward profile before marriage, and it can be argued that the anticipation effects a year or more before marriage is part of marriage’s well-being benefits. In that case we would maybe want to compare well-being after marriage to well-being 3, 4 or even 5 years before marriage. This naturally produces less adaptation than comparing to all years before marriage. Qari (2014) adopts this technique and finds only partial adaptation to marriage in SOEP data.

  11. 11.

    See also Blekesaune (2008) and Laporte and Windmeijer (2005) for partnership separation and the time profile of subjective well-being in BHPS data.

  12. 12.

    Rudolf and Kang (2015) note that much of the childbirth effect found in the literature might actually reflect an overlapping effect from marriage. The joint modeling of multiple adaptation to different events seems potentially rather complicated.

  13. 13.

    Myrskyla and Margolis (2014) find full adaptation to birth of first child in the SOEP and BHPS, although they do find less adaptation for older parents (those aged between 35 and 49 at the time of childbirth). Dyrdal and Lucas (2013) find similar adaptation profiles for both parents in SOEP data.

  14. 14.

    Lyubomirsky (2011) suggests that in general adaptation is faster to positive than to negative events.

  15. 15.

    It could be countered that the rich have more positive values of the elements of the X vector in Eq. 6.1, so that they have higher set-point well-being. This may sound reasonable. But then we would expect increasing GDP per capita over time to go hand-in-hand with higher average happiness, as the average X values in the economy would then improve over time as well.

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Acknowledgments

I am grateful to Paul Frijters, Rich Lucas, Ewen McKinnon, Robert Rudolf, Aki Tsuchiya and seminar participants at the Comparative Study of Happiness Conferences in Kyoto and Paris for useful comments.

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  1. Paris School of Economics-CNRS, 48 Boulevard Jourdan, 75014, Paris, France

    Andrew E. Clark

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  1. Faculty of Economics, Doshisha University Faculty of Economics, Kyoto, Kyoto, Japan

    Toshiaki Tachibanaki

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Clark, A.E. (2016). Adaptation and the Easterlin Paradox. In: Tachibanaki, T. (eds) Advances in Happiness Research. Creative Economy. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55753-1_6

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