Theories of relative deprivation predict negative welfare effects when friends and neighbors become better-off. Other theories of social interaction point instead to likely positive benefits. We encompass both views within a single model, which motivates our empirical tests using a survey for Malawi that collected data on satisfaction with life, own economic welfare and the perceived welfare of friends and neighbors. The results suggest that relative deprivation is generally not a concern for poor people, although it does matter at relatively high levels of living. Our results offer a welfarist explanation for the priority given to absolute poverty in poor countries.