Imagine that your income increases. You are objectively better off, but if everyone around you also earns more, social comparison affects how much happier you feel. This raises a long-standing question in development studies: does a higher income improve feelings of well-being?
A recent publication titled, Social Comparison and Segregation Reveal Well-Being Traps, co-authored by IHS Academic Director, Professor Dr Dr Lasse Gerrits, explores this question by analysing the relationship between income, social comparison and subjective well-being. Below, he shares more on the research and its findings.
The role of social comparison
Research shows that people in high income countries generally feel happier than those in low-income countries, but, paradoxically, an increase in income in both types of countries does not make people feel happier. This phenomenon is called the Easterlin paradox, named after economist Richard Easterlin.
An important reason for this is social comparison. People compare their own increased income against that of those around them and against the living standards in their country. In short, if everyone around them experiences the same increase in income, the effect on their individual happiness is fairly limited, even if they are better off, objectively speaking. This is called subjective well-being. It is driven by how people compare their own situation to others around them in their social network. Subjective well-being and social comparison are important because they help explain why changes in income do not always lead to people experiencing improvements in their situation.
Economic shocks and your well-being
We were interested in two aspects in this research: how subjective well-being distorts recovery after economic shocks, and how subjective well-being is being influenced by other factors beyond just the comparison between similar people.
The assumption is that those who are worse off in the first place will be more vulnerable to the aftereffects of economic shocks than those who are not. We can’t experiment on people in the real world, so we developed a tool that can simulate the behaviour of many similar and dissimilar people. This method is known as Agent-Based Simulation, or ABM. A large amount of prior research was used to develop and calibrate the model after which economic shocks were simulated and the effects on the simulated individuals were traced.
What we found out
Policy responses
With all the caveats that come with simulations, we do think that the outcomes show that assessing the effects of economic policies simply in terms of objective increases in incomes does not capture the actual complexities of well-being. Well-being is thoroughly contextual and heavily dependent on the social networks that people are engaged in. Whether the shock was local or widespread can strongly influence recovery from economic shocks. The policy response should differ between those two. Local shocks must be countered with economic aid that prioritises disparities between groups. Widespread shocks should focus on community-wide support systems beyond restoring income.
Ultimately, a more nuanced understanding of well-being can shape responses that are better aligned with the needs of communities.
- More information
Dignum, E., Geerlofs, A., Gerrits, L. Roy, D. (2026). Social comparison and segregation reveal well-being traps. Nature Humanities and Social Science. Read the paper.
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