This paper develops a formal economic theory to explain the Easterlin paradox-average happiness levels do not necessarily increase as countries grow wealthier. The theory analyzes the different roles of income and non-income factors in promoting people's happiness, and provides a foundation for...

The financial markets are full of puzzles. In the aggregate market, stocks earn returns that cannot be justified by individual risk aversion (the equity premium puzzle); stock prices fluctuate much more than the underlying dividend process (the excess volatility puzzle); and stock returns can be...