available data indicate that the objective standard of living plays a more limited role in consumers’ subjective satisfaction than the theory of consumer behavior would lead us to expect, a finding that poses severe difficulty for a procedure, such as the COLI, that relies on attaching a price tag to satisfaction. Even in the more supportive case of poor nations, the causal nature of the observed relationship remains ambiguous because the wealth of nations is highly correlated with human rights, democracy, and a predominance of individualistic values.

One interpretation of these findings holds that nothing can keep people happy or unhappy for long. According to variants of this hedonic treadmill hypothesis, expectations quickly adapt to new circumstances. If these circumstances are characterized by continuous improvement, ever-increasing amounts of goods are required to maintain the same level of satisfaction (see Brickman and Campbell, 1971; Campbell, 1981). Conversely, deteriorating circumstances would make people unhappy for some time, but only until expectations are back in line with reality, as long as basic needs are met. From this perspective, a satisfaction-based COLI would always show inflation in times of economic improvement because more goods are needed to maintain the base level of satisfaction, and it would show deflation in times of economic hardship once adaptation has set in. More troublesome still, a satisfaction-based COLI may show inflation as well as deflation in the absence of any changes in the price of products, hardly a desirable feature for most practical purposes. Moreover, a satisfaction-based COLI could change in the absence of any actual changes in the standard of living. Given the highly comparative nature of “satisfaction,” a satisfaction-based COLI might, for example, indicate housing inflation once a luxurious new mansion is built in the neighborhood, by making the existing houses seem less satisfying by comparison.

An alternative interpretation of the weak relationship between the standard of living and consumers’ satisfaction suggests that subjective well-being and life satisfaction may be largely a function of people’s temperament and genetic endowment. Twin studies suggest, for example, that “the reported well-being of one’s identical twin, either now or 10 years earlier, is a far better predictor of one’s self-rated happiness than is one’s educational achievement, income, or status” (Lykken and Tellegen, 1996:189). From this perspective, the subjective well-being of consumers is largely independent of the level of material well-being, which is consistent with the available survey data.

However, a word of caution is in order. As noted above, reported satisfaction is not closely related to experienced utility. At present, for example, it is not known if a new mansion next door would actually make the neighbors feel less comfortable in their old homes on a moment-to-moment basis or if it would only reduce their global evaluations of their homes, as expressed in satisfaction judgments (see Kahneman, 1999, for a discussion). It is conceivable that a higher standard of living may actually result in more positive moment-to-moment experiences with life which, however, may not show up in global satisfaction judg-