Diminishing Marginal Happiness

Traditional economics holds that marginal utility, the value added by each new widget to life satisfaction, for example, decreases with each additional acquisition of the same item. Happiness scientists have found that the same thing holds true with overall material consumption. For poor nations, happiness tends to rise quickly when purchasing power and standard of living increase. But past a certain level of annual income, perhaps as low as about $10,000 per person, the curve of increased satisfaction flattens and eventually becomes a straight line. It may even begin to decline. So, for instance, in the United States, surveys of self-reported life satisfaction show a slight downward trend over the past half century, despite average incomes more than doubling.7

It is true that in virtually all societies, rich people are happier than poor people, a phenomenon that reflects status and power differences and the psychological fact that we tend to judge our success, and therefore rate our satisfaction, in comparison to others. Yet as an entire society's income rises past a minimum of modest comfort and economic security, overall levels of happiness do not rise with it.

This finding led the former Harvard president Derek Bok to a sensible observation: “If it turns out to be true that rising incomes have failed to make Americans happier, as much of the recent research suggests, what is the point of working such long hours and risking environmental disaster in order to keep on doubling and redoubling our Gross Domestic Product?”8

Good question.

But if rising incomes don't do the trick, is there any hope at all? Is economic policy totally irrelevant to happiness? Is it all merely a matter of personal attitude? We don't think so. A certain portion of happiness is genetic — perhaps 50 percent, according to researchers. Some people are born more cheerful than others. But genetics can't explain the wide variation between countries in measures of happiness. Environmental and social conditions matter too, and policy often shapes these conditions.9

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