Tamás Keller the Connection between Life Satisfaction and Material Aspirations

In seeking to answer the question of whether income brings happiness, Richard Easterlin (1974, 1995) found a paradox. Within a given country, higher-income respondents usually reported greater happiness; however – in cross-country comparison – if aggregate income in a country rises, happiness does not necessarily follow. Both theoretical and empirical social research provides a number of explanations for this paradox (see Ferrer-i-Carbonell, 2005: 988–9). Of these, it is indisputably relative income theory that has evoked the most attention. According to this argument, happiness depends not on absolute, but on relative income. If the level of income rises against that of a specific reference group, that creates happiness; however, if everybody’s income rises and the relative income differentials between individuals stay constant, that does not lead to happiness. In other words, the positive effect of income on happiness is counterbalanced by the negative effect of relative income (Easterlin, 1995: 36). The results of empirical research, however, are somewhat ambiguous. Senik (2004) found a positive connection between relative income and happiness. She argued that, in uncertain economies like Russia’s, the rise in income in the reference group might be associated with a forecast rise in the individual’s own income, which may be understood as a kind of ‘tunnel effect’, as posited by Hirschman (1973). Testing the same question on German data, Ferrer-i-Carbonell (2005) estimated the impact of relative income to be negative: its impact in western Germany was greater than that of income; however, this did not hold in eastern Germany. A negative relationship between satisfaction and relative income has been found by other scholars as well (McBride: 2001; Hajdu and Hajdu: 2011). Another solution to the Easterlin paradox is that if income rises, so do income aspirations, and rising aspirations counterbalance the positive income effect (Easterlin, 1995: 41). This logic has received much less attention in the social research; however, theoretically it is also well founded. Brickman and Campbell (1971) developed the concept of the ‘hedonic treadmill’, according to which humans adapt very quickly to change in their objective circumstances, so that any gain in satisfaction lasts only for a while. The impact of income aspirations on life satisfaction seems to have been tested only once – by Stutzer (2004), using Swiss data. According to his findings, income aspirations decrease life satisfaction by about the same magnitude as income increases it. According to the author’s argument, the extent of income aspirations may be influenced by the income-comparison effect (i.e. relative income): people living in richer regions usually have higher aspirations, and this continues even after controlling for the difference in living standards between rich and poor regions. In this article we will shed light on the negative relationship between income aspirations and life satisfaction.