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end on income in absolute terms but also on the subjective perception of whether one's income is adequate to satisfy one's needs. In addition, individual income perception is subject to the individual's own situation, past and present, as well as to the income of other people. The latter reflects the importance of the relative position of individuals in society for their satisfaction with life. This is often referred to as the 'comparison income' or 'relative utility' effect.

It is often argued that individuals adapt to new situations by changing their expectations (Easterlin, 2005; Clark et al., 2008). This implies that higher incomes are accompanied by rising expectations that lead to what is known as 'the hedonic treadmill' (Brickman and Campbell, 1971) or 'hedonic adaptation' (Frederick and Loewenstein, 1999). Thus, individuals strive for high incomes even if these lead only to a temporary or small increase in well-being. This ability to adapt would appear to be a ubiquitous feature of the human condition, some recent examples of adaptation in nonmonetary spheres are Lucas et al. (2003) and Lucas (2005) with respect to marriage and divorce, Wu (2001) and Oswald and Powdthavee (2006) for adaptation to illness or disability, and Lucas et al. (2004) regarding unemployment.

The comparisons with different social reference groups are also an important factor that has been widely present in the analysis of two dimensions; namely, the analysis of the effect of relative income on financial satisfaction and/or satisfaction with life as a whole (McBride, 2001; Stutzer, 2004; Luttmer, 2005; Clark, Frijters and Shields, 2008) and the influence of unemployment on subjective well-being. A standard result in happiness literature is that the unemployed report significantly lower levels of subjective well-being than other labor force groups (Winkelman and Winkelman, 1998; Frey and Stutzer, 2002). Indeed, the pecuniary and the non-pecuniary costs of the unemployment are that high that adaptation is non-existent (Lucas et al., 2004) or only very moderate (Clark, 2002). Clark (2003) uses seven waves of the British Household Panel Survey to test for social norms in labor market status. In his analysis, he found that the well-being of the unemployed is the higher, the higher the unemployment rate in a reference group (at the regional, partner, or household level). It seems that, the more unemployment becomes the norm, the less individuals are affected by it (Winkelman, 2006). Lalive and Stutzer (2004), using a different strategy, obtain the same results for information from Sweden.

Social interactions could be either a negative or a positive factor. As previously mentioned, an individual's happiness depends on that individual's own relative (or positional) situation or status, and comparison with others, what would expose that individual to negative externalities in terms of 'peer-effects' (Luttmer, 2005) in utility and/or consumption. Alpizar, Carlsson and Johansson-Stenman (2005) show that positionality matters far more for commodities as houses and cars than for vacation and insurance, but also that both absolute and relative consumption matter for each category, these are 'positional goods'. The positive influence of social interactions may come from social relationships and other 'relational goods' or social capital factors.

For instance, Rojas (2007), Winkelman (2006