Adaptation or Social Comparison? The effects of income on happiness.

Two mechanisms have attracted considerable attention from researchers studying the effects of income on happiness: adaptation and social comparison. In this paper we study both mechanisms using a panel of British households. Besides dealing with the UK case in detail, the paper contributes to the literature by considering the two mecha- nisms together and testing for them both separately and jointly. Our results strongly support the existence of adaptation effects but find only weak evidence in favour of social comparison.