The Easterlin paradox is a concept in happiness economics. It is named for the economist Richard Easterlin, who suggested that a higher level of a country's per capita gross domestic product did not correlate with greater self-reported levels of happiness among citizens of a country, in contrast with people inside a country. Later research has questioned whether Easterlin's conclusions about the non-correlation were accurate.
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Theory
Easterlin, a professor of economics at the University of Southern California, first argued in a 1974 that while within a given country people with higher incomes were more likely to report being happy, this would not hold at a national level, creating an apparent paradox. He reported data that showed that reported happiness was not significantly associated with per capita GDP, among developed nations. Examining trends within nations, he suggested that the increase in income in the United States between 1946 and 1970 contrasted with flat levels of reported happiness, and declines between 1960 and 1970. These claimed differences between nation-level and person-level results fostered an ongoing body of research and debate.
The theory was examined by Andrew Oswald of the University of Warwick in 1997.
Criticism and later research
In 2003, Ruut Veenhoven and Michael Hagerty published an analysis based on various sources of data, and concluded that there was no paradox, and countries did indeed get happier with increasing income. In a reply in 2005, Easterlin maintained his position, suggesting that his critics were using inadequate data.
In 2008, economists Betsey Stevenson and Justin Wolfers, both of the University of Pennsylvania, published a reassessment of the Easterlin paradox using new time-series data. They concluded like Veenhoven et al. that, contrary to Easterlin's claim, increases in absolute income were linked to increased self-reported happiness, for both individual people and whole countries. They found a statistical relationship between happiness and the logarithm of absolute income, suggesting that happiness increased more slowly than income, but no "satiation point" was ever reached. The study provided evidence that absolute income, in addition to relative income, determined happiness. This is in contrast to an extreme understanding of the hedonic treadmill theory where "keeping up with the Joneses" is the only determinant of behavior.
In 2010, Easterlin published data from a sample of 37 countries reaffirming the paradox which was soon questioned by Wolfers. In a 2012 report prepared for the United Nations, Richard Layard, Andrew Clark and Claudia Senik point out that other variables co-vary with wealth, including social trust, and that these, and not income, may drive much of the association of GDP per capita with well-being.
In 2015, psychologists Thomas Gilovich and Amit Kumar published a review which demonstrated that "experiential purchases (such as vacations, concerts, and meals out) tend to bring more lasting happiness than material purchases." They found this was because "Compared to possessions, experiences are less prone to hedonic adaptation".
Selin Kesebir, a professor at the London Business School, and Shigehiro Oishi, a professor at the University of Virginia, argued that inequality mitigates against the effect that increased GDP may have on national happiness and could partially explain the paradox.