Happiness is a subjective notion but so is income inequality as “we are happier when comparing to others” said Professor Andrew Clark, Paris School of Economics at a seminar on “Inequality and happiness” organised jointly by the EIB Institute and the University of Luxembourg as part of the “Inequality and…?” series.
“People are comparative animals and if we all get richer we don’t get happier. What matters is how well we are doing relative to others”, he added.
Inequality will affect well-being (happiness) via relative income i.e. not only how much income I receive (my absolute income), but also how much richer and poorer I am compared to others, Professor Clark continued. For instance a study in which people had to choose between two options – (Option A) current yearly income of USD 50,000 while others earn $25,000 and (Option B) current yearly income of USD 100,000 while others earn USD 200,000 – showed a marked preference for A over B.
Statistical measures of inequality such as the Gini coefficient or quintile comparisons are objective but they don’t measure what individuals believe that others earn, Professor Clark underlined. That belief may not be correct especially since comparisons to people richer than you matter more than comparisons to those poorer than you.
Therefore, he asked in conclusion “do we need a policy for distribution, or a policy for the perception of distribution? And if comparisons make us unhappy, can we learn to compare less?”.
Click here for the presentation.