In a conversation with Zuzka Brokešová and Andrej Cupak from the NHF, authors of the study Real Assets and Subjective Well-Being: Using a Novel Measure for Relative Effects (https://doi.org/10.1007/s11205-025-03717-4) published in Social Indicators Research, we talked about their research. You will learn why our happiness depends not only on our own wealth, but also on the wealth of the people around us—neighbors or peers—and what lies behind this relationship.
In economics, we often ask how wealth affects the subjective feeling of happiness. We tend to assume that greater wealth also brings greater satisfaction. In your research, however, you focus on how the wealth of people in our surroundings—such as colleagues or neighbors—affects our own experience of happiness. Tell us more about that.
This question is not new in the literature, but what matters is also the methodological approach. Many previous studies, for example, tried to answer it by calculating the level of wealth based on the socio-demographic characteristics of the reference group (region, age cohort, education level, etc.). Yet such an approach can lead to mixed results.
Instead, together with Marian Rizov, and Anthony Lepinteur, we came up with the idea of using data from the HFCS (Household Finance and Consumption Survey). Specifically, we used interviewers’ assessments of the quality of respondents’ homes and their neighbors’ homes to measure relative comparison effects directly in the relationship between wealth and happiness.
I see—so you used not only the information provided by respondents’ answers, but also the assessment filled in by those conducting the survey about the respondents’ living conditions. What conclusions did you reach?
Thanks to this innovative approach, we bring several new insights to the empirical literature. We found that roughly 7% of the relationship between real assets (by which we mean housing quality) and life satisfaction can be attributed to comparisons with the environment in which the respondent lives.
So does that mean that the living standard of the surrounding area influences our own happiness?
Yes. If neighboring homes are of higher quality than the respondent’s housing, it significantly reduces their happiness. However, if neighboring homes are of lower quality than their own, it has no significant effect on the respondent’s subjective well-being.
That is a very interesting finding. Did your article also examine the mechanism behind it? The explanation likely lies in human psychology. Jealousy comes to mind. Is that mentioned in the literature, or what other explanations are there?
Research has long confirmed that happiness also depends on how we compare ourselves with those around us: if our reference group performs better, we may feel less satisfied—this is known as the comparison effect. This mechanism has been repeatedly confirmed in surveys, experiments, and analyses of administrative data. At the same time, there is an opposite mechanism, the information effect, in which we perceive others’ better outcomes as a signal that we too might be better off in the future—thereby increasing our satisfaction. With wealth, these two effects (information effect and comparison effect) manifest differently across countries: for instance, in Australia or Germany, positive information effects dominate, so the wealth of people around us motivates individuals and improves their well-being, whereas in the US it is more the other way around, and larger neighbors’ houses reduce satisfaction with one’s own housing. Our results fit into this debate, as they confirm that people also perceive the wealth of their surroundings as information about their future opportunities, so the overall impact is a combination of both psychological mechanisms, not just jealousy.
If I were to say that more egalitarian societies are, on average, happier, would that hypothesis hold in light of your conclusions? And if so, could we achieve greater happiness through a higher degree of redistribution, for example via more progressive taxation?
This is a very interesting question, but our analysis cannot provide an answer to it. A colleague, P. Tóth, recently examined the effect of inequality in society on households’ subjective happiness (https://link.springer.com/article/10.1007/s11205-024-03491-9). That analysis confirmed the hypothesis that inequality in society affects how happy people feel. As for preferences for redistribution through higher taxation, that is again an interesting question, but we did not analyze it in our study either. It could, however, be a topic for further research.
