Earning more money only makes people happier if they feel richer than their friends, neighbours and colleagues, according to a newly-published study.
Researchers at the University of Warwick and Cardiff University said the findings may explain why rising economic prosperity over the last 40 years has not increased overall levels of happiness.
The study, published in the journal Psychological Science, examined data on earnings and life satisfaction from seven years of the British Household Panel Survey carried out by the Institute for Social and Economic Research.
Comparing individuals' happiness with others of the same gender, age, level of education, or from the same geographical area, the study found that money only makes people happier if it improves their social rank.
The study's lead researcher, Chris Boyce, from the University of Warwick's Department of Psychology, said: "Earning £1 million a year appears to be not enough to make you happy if you know your friends all earn £2 million a year.
"Our study found that the ranked position of an individual's income best predicted general life satisfaction, while the actual amount of income and the average income of others appear to have no significant effect."