What's the Easterlin Paradox -- and in what sense does it suggest reference-dependent preferences?

What will be an ideal response?

The Easterlin Paradox arises from the empirical claims that (1) at any given time, measured happiness increases with income and (2) measured happiness does not appear to increase over time as societies become richer nor does it vary across societies that have vastly different incomes (above some basic subsistence level). One way to reconcile these empirical claims is to think of consumption-based happiness as being reference dependent; i.e. we evaluate how happy we are about our consumption by comparing it to the consumption levels around us. Thus, we report being happier as our income rises relative to that of others around us, but it does not change when everyone gets richer at the same time.