Easterlin Paradox

According to the Easterlin Paradox, the statement “As one’s income increases, they maintain the same level of happiness” is the most accurate. The Easterlin Paradox suggests that, beyond a certain point, increasing income does not lead to a corresponding increase in happiness

It shows that at the initial point when you start to earn much, you feel great, but after some time, your higher income becomes a matter of sadness.

1.  The Paradox was formulated in 1974 by Richard A. Easterlin, the first economist to study happiness data, in an article entitled “Does Economic Growth Improve the Human Lot: Some Empirical Evidence” (Easterlin 1974). Because of data constraints, the initial time-series evidence was limited to the United States.
2. The paradox states that happiness varies directly with income both among and within nations at a given point in time, but over time, happiness does not trend upward as income continues to grow: while people on higher incomes are typically happier than their lower-income counterparts at a given point in time, higher incomes don’t produce greater happiness over time.
3. Richard Easterlin has updated the evidence and description of the paradox over time. His most recent contribution is from 2022

Conclusion

• A couple of explanations for the paradox have been offered.
• The first explanation draws on the effect of social comparison. The effect of additional money on how we feel about our lives is not just about how wealthy we are in absolute terms, but how wealthy we are compared to other people.
• The second explanation appeals to hedonic adaptation and the fact that people get used to having more income and higher living standards.  For example, the theory of hedonic adaption would suggest that progress from iPhone 5s to iPhone 6s, iPhone 7s, iPhone 8s, and so on has not made a lasting improvement to happiness.

Comparison between people never lets them go in peace, and that comparison creates a lot of suffering. That is why a poor man, who earns almost nothing, lives in peace because he has no competitors. But the person who becomes newly rich makes everyone his competitor.

This paradox actually aims to say whether money can buy happiness; then it says no. It lies in the social relations and mental development of people.

Father of MU – Daniel Bernoulli, is credited with publishing the first clear statement on the theory of marginal utility in his paper “Specimen theoriae novae de mensura sortis”, which was released in 1738, His work introduced the idea that the utility of wealth decreases as a person’s wealth increases. This is known as diminishing marginal utility

Author: Master Vikrant RohinMaster Vikrant Rohin is an international author, and more than four countries’ schools are using his books in the core curriculum of education. He is the author of twenty different subject books. History, Economics, Chemistry, Physics, English, Biology, Geography etc. Most of his students hold high-ranking positions in the public and private sectors. He has cracked the world’s toughest exam, the "Civil Services Examination (UPSC)," eight times. Always a topper in academics, he was also a top-class sportsman, a state boxer, and a basketball player.