Anke C. Plagnol and Lucía Macchia. "Economics of subjective well-being: Evaluating the evidence for the Easterlin Paradox". chapter in: Ayse K. Uskul and Shige Oishi (eds.). Socioeconomic Environment and Human Psychology. Oxford University Press. (2018).(website)

 

In 1974 economist Richard A. Easterlin asked in his seminal article “Does economic growth improve the human lot?” His answer to this question was a resounding no. The paper described what was later to be known as the Easterlin paradox, which is the observation that at one point in time rich nations are on average happier than poor nations, but over time there is no relationship between happiness and GDP. The Easterlin paradox can also be found at the individual level: Whereas at one point in time rich individuals are on average happier than poor individuals, people do normally not become any happier as their income increases. Social comparison and hedonic adaptation are commonly cited to explain this paradox.

 

Easterlin’s 1974 paper is often described as starting the field of the Economics of Subjective Well-Being, although it was followed by almost two decades of little progress in this field. In the 1990s, economists started to increasingly use indicators of subjective well-being (SWB), first mainly to investigate topics such as income and SWB, and employment and SWB. The Easterlin paradox has been the topic of many published articles, with numerous studies supporting the original findings and some refuting them. Differences in findings can partially be attributed to data quality, the sample countries’ level of economic development and the time span under consideration. The present chapter describes the Easterlin paradox and recent evidence confirming or rejecting its existence. Other developments in the Economics of Subjective well-being are also discussed.