the latter.42 Thus, our findings should not be interpreted as falsifying the view that relative income plays a role in shaping
happiness, although they do bound the extent to which relative income may matter.
In light of this range of possible interpretations, we would suggest that more fine-grained evidence on the role of
relative income should come from direct evidence of relative income shocks, such as that investigated by Luttmer (2005).
In particular, a comparison of the between and within well-being-income gradients cast doubt on a large role for
intranational relative income comparisons in determining happiness. While these comparisons do not speak to the role of
international relative income comparisons, the earliest surveys—conducted in the 1940s—yielded similar estimates of the
between country well-being-income gradient to those seen today. However, these early surveys involved sufficiently few
data points that it is impossible to know with precision whether the gradient between subjective well-being and income
across countries has changed over time to reflect the growing awareness of the opportunities available to others around the
world. In short, the most compelling evidence for the importance of absolute income over relative income in determining
happiness may eventually come from the times series evidence.
Finally, we should note that our analysis has largely focused on establishing the magnitude of the bivariate
relationship between subjective well-being and income, rather than tracing the causal effects of income on happiness. We
believe that further research aimed at better understanding the causal pathways will be fruitful.
42 For instance, these findings are consistent with a simple happiness function: Happiness=0.36 log(individual income) + 0.09
log(individual income/average income)
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