Why income comparison is rational

  • David Wolpert (NASA Ames Research Center, USA)
A3 01 (Sophus-Lie room)


In many cultures a major factor affecting a person's happiness is the difference between their income and that of their neighbors, independent of their own income. This effect is strongest when the neighbor has higher income. In addition a person's lifetime happiness tends to follow a "U" shape, with a minimum in the 40's. Previous models have separately explained some of these phenomena, typically by assuming the person has cognitive limitations, e.g., their happiness has a finite number of possible values. Here I present a model which explains all of the phenomena, and does not assume any cognitive limitations. In this model moderately greater income of your neighbor is statistical data that, if carefully analyzed, would recommend that you explore for a new income-generating strategy. This explains unhappiness that your neighbor has moderately greater income, as an emotional "prod'' that induces you to explore, exactly as a detailed statistical analysis of the income difference would recommend. It explains the "U" shape of happiness in a similar manner.