Friday, April 18, 2008

Money and Happiness In The News

Last Wednesday in the Business section, the Times ran a story about data challenging the old hypothesis that "relative wealth" was more closely tied to happiness than "absolute wealth." The hypothesis was formed in the 1970's on the basis of research showing that while being wealthy did not make people happy, being wealthier than other people did.

This hypothesis is called the "Easterlin paradox" after its formulator, and says that happiness is tied to how wealthy you are relative to others, rather than in absolute terms. But what's paradoxical about it? It's highly intuitive to me. Feeling like one of the richest, the smartest, the coolest, is way more important to my happiness than being, in an absolute sense, rich smart and cool if everyone else is richer, smarter, cooler.

The new data are supposed to challenge the hypothesis, on grounds that people in richer countries are, well, happier.

OK, so I'm not trying to be a pain in the ass about this, but really, I don't see how this follows. I mean, if you're the one of the richest people in Haiti, you're still way poorer than people in other countries. So even if you're rich relative to Haitians, you're still poor relative to the world.

So your unhappiness is just as well explained by the "relative" wealth hypothesis as it is by the absolute wealth hypothesis.

Some cool looking Haitian money.

At least, it is if you're willing to accept the premise that people in poor countries are comparing themselves not only with their fellow-countrymen but also with people in other countries.

The premise seems reasonable. With globalization and the internet, I'm sure people all over the world are fairly informed about people all over the world, and how well they live. At least roughly speaking.

So, uh, I don't get it. Am I missing something?

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