The Neighbor’s Grass Is Greener

Another reason for the gap between income and happiness is our tendency to measure ourselves compared to others, more commonly known as “Keeping up with the Joneses.” Numerous studies in behavioral economics show that people behave irrationally when they compare themselves to others. As economists David Hemenway and Sara Solnick demonstrated in a study at Harvard University, many people would prefer to receive an annual salary of $50,000 when others are making $25,000, than earn $100,000 a year when others are making $200,000 [44]. Similarly, economists Daniel Zizzo and Andrew Oswald conducted a study that showed that people would give up money if doing so would cause someone else to give up a slightly larger sum. [45]

[44] Solnick, S.J., & Hemenway, D., (1998). “Is more always better? A survey on positional concerns.” Journal of Economic Behavior & Organization, 37 (3), 373-383.

[45] The study is quoted in an online essay, “Misery Loves Company: Recession Edition,” in the blog, Macro and Other Market Musings (December 27, 2008), http://macromarketmusings.blogspot.com/2008/12/misery-loves-company-recession-edition.html