It's especially hard to express "happiness" across languages. It's a word that is hard to define and generally has no perfect synonyms between languages. It ranges broadly from "present feeling of contentment" to "ultimate feeling of fulfillment in life," and it seems like the survey is aiming for the latter aspect. Therefore the ladder analogy is a decent way to communicate that.
This isn’t gauging happiness but rather if your country is fulfilling your aspirations. I bet someone that works in a role he didn’t really want still might be very happy on a day to day basis but he never had the chance to become the doctor or botanist he always wanted to be.
An obvious issue with the metaphor that comes to mind is that if you consider yourself to have a pretty good life, to be overall happy and satisfied, but you think it's possible to have an objectively much better life, then you'd rank yourself relatively low. And vice versa, if you think your life sucks but it could be much worse you'd rank yourself relatively high.
If the society/culture you are living within. Is well off, but swamped with cravings that it could be better. Then you are less happy.
This study isn't trying to measure how 'materially well off you are', it is happiness. So if you are un-satisfied even with your big house, and un-happy, that still says something.
It’s also a culture score. Objectively we should all be very unhappy because we’re not all billionaires and can’t do whatever we want but culture tempers at what point you’re content.
The kind of a person who thinks they would be substantially happier as a billionaire would probably be unhappy as a billionaire. You get used to what you have, but there is always more wealth / status / power / influence to be had.
Same problem as rating your pain on the pain scale: is 10 the worst pain I've experienced, or the worst I can imagine? Because I've got a... very vivid imagination. And still, that's the best we can do. I blame an imperfect universe.