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failure of variations in utility to be tied linearly to variations in wealth, though, can be understood as a failure of condition (2) from Section 5.1.1—the wealth/utility relationship is like the Olympic treadmill. More recently, empirical work in the social sciences has gone even further. Kahneman and Deaton (2010) argue that utility (or, as they put it, “emotional well-being”) increases with the logarithm of wealth, but only up to a point. On their account, plotting the relationship between utility and wealth yields a strongly concave function, which is what we ought to expect. However, they also argue that there is a leveling off point in the function, beyond which “there is no improvement whatever in any of the three measures of emotional well-being[1].”

Of course, it is worth noting that Kahneman and Deaton’s investigation involved observation only of residents of the United States. Interestingly, as Kahneman and Deaton point out, the mean income in the United States at the time in which they conducted their research was just under $72,000: very close to the mark at which they observed the disappearance of any impact of increased income on emotional well-being.[2] There is at least some reason to think that this is not entirely a coincidence. McBride (2001) argues that the impact of changes in wealth on an agent’s subjective utility depends not just on how much wealth the subject already possesses, but also on wealth possessed by others in the agent’s social circles. That is, being wealthier than those around you might itself have a positive impact on your subjective utility--an impact that is at least partially independent of the absolute quantity of wealth you possess. McBride found that people are made happier by being the richest people in a poorer neighborhood, and that increasing their wealth (but moving them to a cohort where they’d be among the poorest

  1. Kahneman and Deaton (2010), p. 16491
  2. Op. cit., p. 16492