The Easterlin Paradox

So this week, we’re going to talk about the relativity of the mind. You’ve heard about relativity in physics, of course, and luckily, relativity in the context of psychology is much simpler to understand and also very much more intuitive. But it turns out to be astonishingly important. As usual, I want to start off with something paradoxical, and the paradox I’m going to start with, and we’ll actually have a couple of variations, is a paradox first noted by the great economist, Richard Easterlin. He noted that as nations get richer, they don’t seem to get any happier, at least if you take self-reported surveys of human happiness seriously.

And yet, within an individual country, it turns out that to some extent, at least, being richer does make you a little bit happier. Being very rich doesn’t make you much happier than being moderately very rich, and the effects are all quite small. But nonetheless, within a country, wealth seems to cause a little bit of happiness or be associated with it, but across countries, even though there have been enormous changes in wealth– say since the Second World War, a change of about a factor of three– happiness is pretty much as it was. What’s going on?

Well, one suggestion is that our naive assumption that our sense of well being is actually connected to the objective features of the world around us is wrong. What we’re really concerned about is not the objective features of the world. It’s not really things like the glamorous nature of my car or how quickly it goes or the excellence of the wash of my washing machine or the size my house. These things don’t really affect you very much. What really affects you to the extent that those things affect you at all– and there are lots of other things that affect your happiness much more, of course, than money. The material things that matter, matter in relative terms.

So I might be rather cheered by my car if my car is a nicer car than my neighbour’s. I might be pleased with my washing machine if it’s a better washing machine than the washing machine I used to have. But the absolute qualities of my car or my washing machine or my house really don’t affect my well being very much. So paradoxically, it turns out that the search for increasing GDP, making nations richer and richer, while it might seem inevitably to make people at least a little happier, may actually lead to no such effect at all.

So if we’re all getting slightly nicer washing machines, slightly faster and sleeker cars, and slightly nicer houses, then we all feel about the same as we did before. So this seems like an important issue for politicians to worry about because in practise, one of the central goals for almost all countries, certainly Western countries, is to try to increase gross domestic product, the amount of wealth in a nation. Is this fundamentally a mistake? Just before we go into the core of the week’s material, I want you to think about a related paradox which perhaps pushes in a slightly different direction, which makes one think, hm, that’s an interesting observation, but can it just be the whole story?

Could it really be that wealth is not quite as unimportant as you might imagine. Imagine there are two islands, and in one island, everyone’s got an abundance of everything, very nice material possessions, good schools, good hospitals. Everything is great. On the other island, things are very different. People are much poorer. Their lives are much more materially different in every regard. Now, according to Easterlin’s paradoxical result, it would tend to be quite likely that if these islands are separated from each other, they don’t know of each other’s existence, they’re just living in independent worlds, that the average well being of people in these islands when they report it on a questionnaire, at least, will be about the same.

For example, one island might just be the other island 100 years on in time. So now suppose we allow the islands to communicate. Now imagine that everybody in the rich island thinks, oh, thank goodness I’m in the rich island, and everybody in the poor island thinks, oh, I wish I was in the rich island. There’s something really odd going on here because if we ask these people– and indeed, we imagine that we did ask them how happy they are– they’re all saying the same thing, maybe 8 out of 10 or whatever it might be.

So they all think they’re equally happy until you show them each other, and suddenly you realise that everybody on rich or poor island wishes to be on the rich island. Now, that might not be true. It might be that the rich island is actually a miserable place with lots of back biting and misery, but just suppose it is true that everybody has the same opinion. How does that square with the fact that the happiness ratings of the individual people in the individual islands all seem to be the same?

Is that really telling us that wealth and material well being don’t affect happiness, or is it saying something more about how wealth and well being affect my use of a questionnaire about how happy I am? Because it could be that what you’re seeing in the Easterlin paradox is not just directly an effect of material wealth on well being. It’s an effect of material wealth on the perception of well being. So when I think, on a 1 to 10 scale, how happy am I? I’m thinking, well, the happiest people in my island would be tens and the least happy would be ones. I’m about a seven. And of course, you might have the same logic on the other island.

But of course, as soon as see the people on the island you’re not currently on, your judgments might change quite dramatically. In any case, I want you not so necessarily to resolve that paradox, but just to hold on to the fact that on the one hand, we might think that relativity is all about judgments and perceptions of how happy we are, but perhaps for happiness, the perception, the judgement , is all there is. Is there really any more to being happy than thinking you’re happy?