Throughout the scientific concern of whether happiness is influenced by the amount of money owned remains an opened question. Basic economic literature suggests that citizens of richer countries should experience higher level of happiness, due to the possible “positive” relationship between income and happiness. Furthermore, happiness is measured in terms of utiles, resulting in the fact that richer individuals could experience higher level of utility from the income they held. At first sight it seems quite clear that the more richer the person is the higher degree of happiness the individual could experience. However, studies reveal the perception of happiness is different and quite hard to measure as it depends on the psychological view of the person in interpreting happiness.
The puzzle of whether the income increases happiness is always related to the status of people within a society. An example is given by Easterlin (1995) that used the concept of aspirations as a frame of reference to explain happiness. He acknowledges that people with higher incomes are, on average, happier, but raising everybody’s incomes does not increase everybody’s happiness, because, in comparison to others, income has not improved. Furthermore, Brickman et al. (1978) improved the research by observing the amount of happiness that the winners of large amount of money have experienced. People who won the money through lotteries reported only slightly levels of life satisfaction than a control group and were less pleased with everyday life events. The main essence of the “puzzle of happiness” relies in the fact that people experience higher amount of happiness with the increasing income to a certain threshold after which the happiness would be registered at a decreasing rate. A prominent example in the literature is given by Blanchflower and Oswald (2000) that identified a relationship between per capita income in the United States and the happiness of people. As states in the study, the sharp increase in per capita income did not lead to a higher level of happiness that people experienced. Moreover, the percentage of people who considered themselves “very happy ” has fallen over the same period.
Additional material goods and services initially provide extra pleasure, but this is always transitory. Consequently, satisfaction disappears with continued consumption that is also called ‘adaptation’. According to Frey and Stutzer (2002) human beings have “rising aspiration levels” which describe the individuals as unsatisfied and striving to achieve more and more. Furthermore, this does not hold for material goods and services but also for many immaterial achievements. In addition, people always compare themselves with a reference group. Thus greater opportunities provided by greater income do not always raise happiness. As a result people are trapped in a situation that higher aspirations lead to the lowering of subjective well-being. Moreover, most people think that they felt less happy in the past, but expect to be more happy in the future (Easterlin 2000).
In conclusion, the economic assumption that higher income produces more utility and individual well-being is not always backed by many social scientists. It is important to see that happiness research completely alters the structure of the relationship between income and utility. Happiness research supports the claim that basic relationship between income and happiness holds irrespective of countries. Across countries the income and happiness are positively related and that the marginal utility falls with higher income. Higher income raises happiness in developing countries, while the effect is only small in rich countries. Furthermore, evidence from empirical data suggests that people get used to their higher income level, which then produces less happiness for them than they would enjoy if no aspiration levels would adjust to the rise in income. Another important theoretical concept is that individuals do not value absolute income, but compare it to the income of relevant others by opening up the issue of what people people compare oneself with.
Blanchflower, Daniel G., and Andrew J. Oswald (2000). Well-Being over Time in Britain and the USA. NBER Working Paper no. 7487. Cambridge, Mass.: National Bureau of Economic Research.
Brickman, Philip, Dan Coates, and Ronnie Janoff-Bulman (1978). Lottery Winners and Accident Victims: Is Happiness Relative? Journal of Personality and Social Psychology 36(8): 917-27.
Easterlin, Richard A. (1995). Will Raising the Incomes of All Increase the Happiness of All? Journal of Economic Behaviour and Organization 27(1): 35-48.
Easterlin, Richard A. (2000). Income and Happiness: Towards a Unified Theory. Mimeo. Los Angeles: University of Southern California.
Frey, Bruno S. and Alois Stutzer (2002). Happiness and economics. How the economy and institutions affect well-being. Princeton University Press, Princeton (N.J.).