Happiness “dips” After $37,000 GPD Per Person

happy puzzleEconomists at Warwick have found that happiness dips among people living in the wealthiest countries in a study published at Plone One, “A Reassessment of the Relationship between GDP and Life Satisfaction.”

Led by Professor of Economics, Eugenio Pronto at Warwick University, and Dr Aldo Rustichini of the Centre for Cognitive Sciences, Minnesota, the study looked into how happiness, or “life satisfaction” was affected by the rise or fall of a country’s economy.

It found that in the poorest countries, happiness was closely linked to the GDP as people’s life satisfaction increased with their renewed ability to meet their basic needs for food, housing and goods.

In rich countries, however, once income reaches around $36,000, life satisfaction peaks and then appears to dip.

The dip in happiness is caused by a rise of aspirations which, when not met, leads to disappointment and dissatisfaction. In effect, the rise in income creates a less attainable set of “Joneses” for people to keep up with.

Dr Proto said:

As countries get richer, higher levels of GDP lead to higher aspiration. But this aspiration gap – the difference between actual income and the income we would like – eats away at life satisfaction levels. In other words, what we aspire to becomes a moving target and one which moves away faster in the richest countries, causing the dip in happiness we see in our analysis.”

People in countries with a GDP per capita of below $6,700 were 12 per cent less likely to report the highest level of life satisfaction than those in countries with a GDP per capita of around $18,000.

As countries reached $20,400 GDP per capita, the increase in happiness that higher wealth brings became minimal. The probability of reporting the highest level of satisfaction changes by only two per cent between $20,400 and the very highest GDP per capita of $54,000.

This corresponds with the well-known Easterlin Paradox or “happiness-economics” – that the link between life satisfaction and GDP is more or less flat in richer countries. Rather than continuing to increase or flatten as studies have suggested, this recent study shows a drop in life satisfaction once countries go beyond a level of GDP per capita of $36,000.

Data on life satisfaction was sourced from the World Values Survey and GDP figures which, in a new approach to looking at the issue of wealth and happiness, were analysed as quantiles.

By analysing the data in this way, researchers were able to avoid imposing restrictions on the “econometric model” – a statistical model used in economics. This also enabled for a control for country-fixed effects in order to exclude differences due to culture, translation and linguistic issues. Dr Proto adds:

Whether wealth can buy a country’s happiness is a major question for governments. Many policy-makers, including in the UK, are interested in official measures of national well-being. Our new analysis has one very surprising finding which has not been reported before – that life satisfaction appears to dip beyond a certain level of wealth.”

Press release, Warwick : http://www2.warwick.ac.uk/newsandevents/pressreleases/gdphappiness

Plus One Study: http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0079358

Image credit: with thanks to Billy Frank Alexander of RGB Free Stock

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