The Economics of Happiness, Part 2: Are Rich Countries Happier than Poor Countries?

Following yesterday’s post, I promised to describe the new evidence that rich countries are happier than poor countries.

The simplest way to make this point is with a chart, using data from the Gallup World Poll. This amazing new dataset contains detailed data on subjective well-being for 132 countries in 2006. (Amazingly, Gallup plans to continue to field this poll every year.)

The key question asks:

“Please imagine a ladder/mountain with steps numbered from 0 at the bottom to 10 at the top. Suppose we say that the top of the ladder/mountain represents the best possible life for you and the bottom of the ladder/mountain represents the worst possible life for you. If the top step is 10 and the bottom step is 0, on which step of the ladder/mountain do you feel you personally stand at the present time?”

The following chart simply takes the average levels of satisfaction on this 0-10 scale, and plots it against G.D.P. per capita (note the log scale):


There is an incredibly high correlation between average levels of happiness and average incomes — greater than 0.8. Angus Deaton actually beat us to this finding, and his analysis of these data is worth a close reading, (here).

There’s another striking finding in this graph: the relationship between happiness and log income appears nearly linear.

Thus, a 10 percent rise in income in the United States appears to increase happiness by about as much as a 10 perecent rise in income in Burundi.

Let me add two further comments here:

1. This is an interesting finding, because many had argued that there is a “satiation point” beyond which you just don’t benefit from greater income. Indeed, Richard Layard has argued that “there is no evidence that richer countries are happier than poorer ones — so long as we confine ourselves to countries with incomes over $15,000 per head.”

In fact, the slope appears to get steeper above $15,000!

2. Even so, it is worth noting that a 10 percent rise in income in Burundi requires one-sixtieth as much income as a 10 percent rise in income in the U.S. Thus, even if the slope is three times as steep for rich countries as poor countries (as we estimate), this still means than an extra $100 has about a twenty-times-greater effect on happiness in Burundi than it would in the United States.

Comparisons like this make you think that foreign aid may not be such a bad idea.


A couple of people asked about the significance of the log scale - it's misleading if you aren't used to looking at them.

Click through to the Deaton paper and scroll down to the charts at the end - he has the same data on a linear scale. It's more obvious on his chart how much more difference money makes on the low end of the scale.

And above $15K, the differences get lost in the variability - that is, there are coutries like Finland and Denmark that are happier, with far less money, than the USA. To me that means that above 15K, factors other than money have a greater effect on happiness. Maybe those factors are good health care, or social equality? In any case, it doesn't appear that "trickle down" is working in the USA, which is on the bottom edge of the happiness curve despite having the highest GDP. We don't appear to be doing the right things with our money.


Perhaps the conclusion should be that higher income is a result of higher life satisfaction.

Correlation and causation should not be confused.


I just don't know that the question itself necessarily gets to "happiness". The terms "best possible life" and "worst possible life" don't necessarily correlate to "happiest" and "least happiest", especially if we are looking at people in other countries/cultures, where other desires influence life choices. The perception of one's place in the world does not necessarily dictate their happiness; it certainly can for many people, but why not just ask the question more bluntly, asking, on a scale of 1 to 10, how happy are you with your life? Greg Easterbrook has an interesting book dealing with this particular issue. An excerpt from the book's synopsis: "His latest, The Progress Paradox: How Life Gets Better While People Feel Worse, was published in December 2003. The book focuses on statistical data indicating that Americans are better off in terms of material goods and amount of free time available but surveys show that they are not happier than before. Easterbrook argues that this has occurred due to choice anxiety and abundance denial."

I'm not well-versed in statistics and approach this from a non-academic perspective, but this would be the conclusion I walk away with from reading this study; namely, that the question was not necessarily about happiness.



Can anyone explain to me why Venezuela is an outlier in being much more happy than expected for their income?

Don't these people realize that they have the 4th highest murder rate in the world?

Does Hugo Chavez have magic happiness dust that he blows on all the Venezuelans?

Mr ?

Does anyone else wish they had used average income per capita instead of GDP per capita? And nominal dollars rather than PPP? If you're comparing international financial figures, doesn't it make more sense to use 1 system of exchange?

And can someone please explain the significance of using a log scale????

As regards the question asked participants, I think it's as good as you're going to get. 'How happy are you - 1 to 10?' will set a short term context. Having people consider their general satisfaction with life is far better.


The question is asking for people to imagine "the best possible life" and NOT "how happy are you?"
1) Aren't these questions entirely different?
2) If people are imagining the "best possible life", then may they be comparing themselves to people around the world? If so, then wouldn't you still say that people's own sense of well being is relative to the rest of people out there? Isn't this question inherently about people's relative positions in life?


I find the results of this study quite revealing and it is interesting that people are taking issue with its conclusions and the measure of "happiness" used. I think we in the west are somehow uncomfortable with (or feel guilty about) the idea that having a great deal of wealth and resources really does make our lives better and more satisfying than the lives of those that don't. The old maxim that "money can't buy happiness" was probably coined by someone who had both.

Mark Bryan

How do you know people don't compare themselves to those in other countries? Immigrants do. Seeking, as in the question, the "best possible life".

Uncle Jeffy

So individuals in higher-income nations consider themselves more satisfied with their lives. Does that mean that individuals in lower-income nations might be ..... "bitter"?

Perhaps Prof. Goolsbee has some thoughts on this issue.


It seems to me, as a non-academic, that Gallup has done a creditable job of creating a culturally neutral happiness measure. Since this study shows a reasonable correlation between wealth and happiness, I see that as much a validation of the polling technique as a refutation of the Easterlin paradox. Certainly, if people are even partly rational, then they will use their *excess* funds in a way that would make them happier. If there were a way to calculate how much discretionary money exists in an economy, that graph might shown an even higher correlation to happiness.

I would also point Freakonomics readers who would be interested in another point of view to Dan Ariely who has a poignant post on what this means to him personally.


Maybe the Easterlin paradox was true before the days of globalised communication, when people only compared their own lives to the lives of people in their own country.

So it might still be about relative wealth, but the reference group has changed dramatically.


Before jumping to the conclusion that foreign aid would increase happiness, I think it's worth arguing that happiness that comes from money, comes from one's ability to earn money, not just have it handed to them. People need opportunities to progress, not just opportunities to spend money.


Agreed - it is always better to teach someone how to fish than to just give them fish.

The Happy Rock

I am with Tom is comment #11. It really seems that for this to have any meaning that people answering the questions would need to be isolated from knowing about other countries. I suspect that someone in former Zaire who is at the top of the income chain might rate themselves high on the scale if they only had knowledge in their own country. But when you start to flash scenes of huge mansions fancy cars and abundant resources/food in the Europe and the US for example his rating would most likely drop significantly.

Even if the question was perfect and it isn't, would the correlation really mean that income is the cause. Not sure we can make that jump.

Dave Younskevicius

Of course you'll see this trend because this chart has a log scale. But people don't always see money that way. A 10 percent increase is a lot more money for someone who already has a lot. Yet the increase in happiness is linear.

So it looks like more money (in absolute terms) doesn't bring that much more happiness. Unless you always get increases in income as percentages in the form of raises and the like, you would think that there are better ways to be happy than making more money.

Sometimes I think I must be the only one who always wants to see data on a linear scale. In this case, you'd see a much flatter increase in happiness as income goes up. That seems more intuitive to me.

G. Owen Schaefer

I understand happiness is notoriously difficult to measure, but the Gallup poll question seems a particularly bad rubric.

It specifically asks what life you think best on a ranked scale. It is bad to assume this is the same thing as life satisfaction, though. Consider: a very contented person might say, even if he is a 5 on the scale, that he is quite satisfied with his life; while an uncontented person reporting 8 might be much less satisfied...he just has to keep feeding the beast (indeed, perhaps his natural lack of satisfaction got him ahigher place on the ladder).

Moreover, I find it natural that people assume more money/resources is better, and the poll suggests people accurately guage how well-off, materially, they are in a relative sense. But the point of the Easterlin paradox is that our common assumptions about what's "best" is crucially misguided.

Many think they would be better off with more resources, worse off with fewer resources, and people appear to respond to the Gallup with that theory in mind. But, as the saying goes, money can't buy happiness.

Similar arguments could probably be applied to various "happiness surveys" which justify the Easterlin paradox itself, but at least those surveys ask people how *happy* they are, rather than where they are on the *best possible life* scale.



I wouldn't mind the concept of foreign aid so much if the money actually benefitted the people. Instead it usually lines the pockets of the countries' so called leaders.


Interesting, but this assumes that people are truthful in reporting their happiness. Especially, if you are rich, you are expected to be happy.


All very interesting, but it's a shame about the "best possible life for you" Gallup poll question. It doesn't get at "happiness" in any real sense, the problem is that we don't know if people are making relativistic comparisons across borders in their answers or not. Surely the chap in Burundi would answer more than 4 if he didn't know that a better life was possible in say Denmark or the US. Really we need a veil of ignorance for this question to work, or we would need data over a large number of years to see if this graph shifts up as countries get richer on average or if it merely shifts to the right meaning that happiness as we previously thought is relative? I'm sure Justin will answer this question in part 3 though.

Jose Hernandez

For FK, about Venezuela, we are just drunk and partying all the time.