Consumption Comparisons and Happiness:A Calibration Study

Does it make us unhappier when we compare our consumptionwith that of the Joneses or our own past achievements? This paper tries ananswer by bringing together two disparate literatures: the macro (growth)theory on habit formation and the applied literature related to the Easterlinparadox. Using the association of happiness and family income in the U.S.it calibrates a simple model of economic growth and estimates how much individualwelfare (happiness) is aected by unexpected losses (e.g. followinga nancial crises) and gains of wealth.[...]