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Prosperity paradox

The idea of a 'prosperity paradox' has been around for some time and describes the fact that as western societies become richer there is not a concomitant gain in happiness. Researchers have put forward two principal reasons for this paradox:
  • Adaptation
  • Reference anxiety

Adaptation, the set point and the 'hedonic treadmill'

The psychological research which helps us understand why individuals are unlikley to derive a substantial boost to their sense of happiness and well-being from increasing income has been covered in the happiness and well-being sections and we shall simply give a quick resume here. Twin studies suggest that about 80% of an indivdual’s happiness is largely influenced by his/her genetic predispostion. Various things may happen in life which will affect an individual’s level of happiness (such as getting a new job, dealing with illness or acquiring a new car) but within a short period of time the individual will adapt and their happiness level will return to their set-point. 'The hedonic treadmill’ is the term coined by psychologists to describe this ability to adapt. So if an individual earns more money his/her aspirations soon ratchet up and they take the increase in living standards for granted while at the same time aspiring for the next level up in terms of good which will again ultimately fail to satisfy.

Reference anxiety and the 'social treadmill'

Social scientists (economists and psychologists) also talk about another type of treadmill – the ‘social treadmill’. This treadmill affect only operates within a social setting as it involves relationships with other people.  What is at stake here is that people's desire to be wealthier is less about having the additional income or what it can buy, and more about wanting to become wealthier in comparison to others, either in general or in relation to particular peer groups. In short, they are seeking to use money to increase their self-esteem or their status.

So the idea of reference anxiety, or the social treadmill, suggests that  what we want in life, and feel we need, escalates as we compare ourselves with other people. Such a ‘keeping up with the Joneses’’ attitude means that it is difficult to feel happy or satisfied.

Various pieces of research validates the idea of a social treadmill:

  • People would choose to earn less income in a year if their position relative to others improved
  • People’s satisfaction with their earnings is related to the earnings of their spouse, families or colleagues.

In Economics and Happiness, the editors, Luigino Bruni and Pier Luigi Porta, argue that these types of social comparision effects 'can also be described by using the image of a treadmill: together with our income or consumption something else is running along: the income of others.'

Prosperity paradox

The prosperity paradox then can be explained by the notions of adaptation and reference anxiety. People strive for the next 'must have' good but their satisfaction with this soon compromised by an adjustment to it being a 'normal' good in ther life, and this dissatisfaction is further compounded by the fact that many other people now own the same good making it less desirable. For those interested in furthering happiness, there is a growing question mark over the worth of 'positional' goods and how much they improve the quality of people's lives. 

Copyright: John McLaren and the Centre for Confidence and Well-being, 2006

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