Q&A: What is the Easterlin Paradox?

The Easterlin Paradox concerns whether we are happier and more contented as our living standards improve. In the mid 1970s Richard Easterlin drew attention to studies that showed that, although successive generations are usually more affluent that their parents or grandparents, people seemed to be no happier with their lives? It is an interesting paradox to study when you are writing about measuring economic welfare and the standard of living.

What is the Easterlin Paradox?

1) Within a society, rich people tend to be much happier than poor people.
2) But, rich societies tend not to be happier than poor societies (or not by much).
3) As countries get richer, they do not get happier.

Easterlin argued that life satisfaction does rise with average incomes but only up to a point. Beyond that the marginal gain in happiness declines.

Easterlin and others including Professor Richard Layard and Daniel Kahneman have spawned a huge amount of research into the economics of happiness and well-being.

One of Easterlin’s conclusions was that relative income can weigh heavily on people’s minds.

Faced with this choice what would you rather have?

You get £5,000 and a friend gets £3,000
or
You get £10,000 and a friend gets £15,000

Economists such as Justin Wolfers have challenged the Easterlin Paradox - see this recent article:

There is a continuous debate about whether we can actually get accurate and reasonably objective measures of our well-being. Clearly income is just one of many factors that influences how satisfied we are with our lives.