Passage A

Research concerning happiness and wealth reveals a paradox: at any one time richer people report higher levels of happiness than poorer people in the same society report, and yet over time advanced societies have not grown happier as they have grown richer. Apparently, people are comparing their income with some norm, and that norm must be rising along with actual income. Two phenomena—habituation and rivalry—push up the norm.

When our living standards increase, we love it initially but then we adjust and it makes little difference. For example, if we ask people with different incomes what income they consider sufficient, the "required income" correlates strongly with their actual income: a rise in actual income causes a roughly equivalent rise in required income. We can also look at reported happiness over time. Job satisfaction depends little on the absolute level of wages but rises if wages rapidly increase.

We do not have the same experience with other aspects of our lives. We do not foresee how we adjust to material possessions, so we overinvest in acquiring them, at the expense of leisure.

Now consider the phenomenon of rivalry. In a study conducted by Solnick and Hemenway, people were asked to choose between two options, with all prices held constant:

A. You earn $50,000 a year while everyone else earns $25,000;

B. You earn $100,000 a year while others make $200,000.

The majority chose the first. They were happy to be poorer, provided their relative position improved.

And indeed, how people compare to their "reference group"—those most like them—is crucial for happiness. In East Germany, for example, living standards have soared since 1990, but the level of happiness has plummeted because people now compare themselves with West Germans, rather than with people in other Soviet bloc countries.

Passage B

Does the Solnick and Hemenway study mean that we care most about one-upmanship? Perhaps out of our primeval past comes the urge to demonstrate our superiority in order to help ensure mating prospects, keeping our genetic lines going. Still programmed like this, we get unexplainable pleasure from having a bigger house than our neighbors.

This theory may sound good and is commonly heard, but it is not the explanation best supported by the evidence. Rather, the data show that earning more makes people happier because relative prosperity makes them feel that they are successful, that they have created value.

If two people feel equally successful, they will be equally happy even if their incomes differ greatly. Of course, people who earn more generally view themselves as successful. But it is the success—not the money per se—that provides the happiness. We use material wealth to show not just that we are prosperous, but that we are prosperous because we create value.

What scholars often portray as an ignoble tendency—wanting to have more than others—is really evidence of a desire to create value. Wanting to create value benefits society. It is a bonus that it also brings happiness.