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Sunday, August 17, 2003

Is the grass always greener on the other side? 

The Economist is carrying a fascinating piece on the relation between rising incomes and happiness. The question seeking redress is why people haven't become happier even as their incomes have risen considerably over time. The implications for public policy are also addressed.

One explanation is “habituation”: people adjust quickly to changes in living standards. So although improvements make them happier for a while, the effect fades rapidly. For instance, 30 years ago central heating was considered a luxury; today it is viewed as essential. A second and more important reason why more money does not automatically make everybody happier is that people tend to compare their lot with that of others. In one striking example, students at Harvard University were asked whether they would prefer (a) $50,000 a year while others got half that or (b) $100,000 a year while others got twice as much. A majority chose (a). They were happy with less, as long as they were better off than others.

Hugely interesting. In fact, I would strongly recommend reading the entire lecture by Layard, which can found in PDF format here.