Research on happiness entered the economics literature about 40 years ago, and the number of articles and books on this subject by economists has exploded during the past 15 years. Various surveys in countries all over the world have asked individuals to indicate how “happy” they are, where they are usually given 4-10 possibilities, ranging from very unhappy to very happy. Then these answers are related in various ways to income level, age, gender, degree of health, and many other characteristics. I will concentrate on the results by income.
The earliest studies had data only for a few mainly developed countries. They found that richer individuals within a country were generally happier than poorer individuals, but that average degree of happiness was not greater in richer countries than in poorer ones. This led to various attempted explanations, but the most common was the claim that happiness depends on how rich a person is relative to others in the same country or region. This was supposed to be the reason why average happiness did not appear to be higher in richer than poorer countries since one’s peers also have higher incomes in richer countries. Such a relative income hypothesis was not implausible, but like many other seemingly plausible theories based on limited data, it turned out to be wrong when happiness data became available for many countries at very different stages of economic development.