The economics of happiness and psychology of wealth

Abstract

The “Easterlin paradox” suggests that there is no link between economic development of a society and the overall happiness of its members, yet wealthy societies and people are happier than those with low income. Using recent data from Social Diagnosis (www.diagnoza.com) and several surveys on a broader array of countries I verify a few hypotheses on relationship between income and psychological well-being at micro and macro level. The main factor which differentiates the pattern of the relationship is level of income. In poor societies and people income affects well-being, but in wealthy societies and people direction of the relationship is reversed: well-being determines income. Money buys happiness when income is too low to satisfy basic needs, and happiness gives money when income is satisfying.