An Emotional Rollercoaster: Trends in Subjective Wellbeing During the Economic Downturn

Since 2008 Gallup has polled a random sample of 1,000 Americans daily (link here) about their subjective well-being. The data provide a rich basis for examining the short-run effects of the economic recession on self-reported happiness, life evaluation, and stress. In a masterful paper, Angus Deaton digs into the data to show how the population has responded to different economic indicators. The bottom line: self-reported wellbeing responded greatly to the fluctuations in the stock market from 2008 to 2010, and less to macroeconomic indicators like the unemployment rate. Most unexpectedly, respondents were highly sensitive to survey design – when wellbeing questions directly followed questions about feelings about national politics, ratings plummeted evidently because Americans feel very negatively about their government.

I previously reviewed the subjective wellbeing (SWB) concept, and described some interesting papers that exploit exogenous shocks in wealth to examine subjective wellbeing. SWB is really several concepts: a person’s happiness at a point in time, a person’s assessment of how well their life is going (for example, the “Cantrell ladder” which asks people to place themselves on an 11 point life satisfaction ladder), and the experience of different feelings such as anxiety, smiling, anger, or crying. Across countries, the relationship between logged GDP per capita and average life satisfaction scores is positive and linear at any point in time (Americans average around “7”, very poor countries like Benin and Togo average around “3”, the Danish top the scale at around “8”). By contrast, there is no strong relationship between the hedonic experience of happiness and GDP per capita: people in poor and rich countries are about as likely to say that they feel happy at a point in time.

The Bitter Taste of Politics

Deaton examines changes in all of these dimensions during the recession. As one might predict, the average ratings on the Cantrell ladder scale drop considerably after the collapse of the financial markets in 2008, however, they massively increase for no immediately obvious reason on April 6th 2009 (see picture below). As it turns out, the reason is due to a change in survey design: on that date survey respondents were no longer asked about their political opinions on various issues before the SWB questions. Deaton says: “People appear to dislike politics and politicians so much that prompting them to think about them has a very large downward effect on their assessment of their own lives… the effect of asking the political questions on well-being is only a little less than the effect of someone becoming unemployed, so that to get the same effect on average well-being, three-quarters of the population would have to lose their jobs. Not everyone becomes unemployed, but either half or all of the respondents are asked the political questions.” The bitter taste of American politics evidently makes people feel momentarily feel that their own lives are going worse.

There are lots of gems related to survey design on this point in the paper, and I encourage you to read it for that alone. One interesting finding is that putting in a transition question, that is, asking people to not focus on politics and focus instead on their own lives appears to effectively neutralize the question ordering effect. In any case, Deaton provides a fairly interesting and convincing methodology for repairing the series of observations so that he can consistently evaluate the trend in SWB over time.

How do people feel in a rollercoaster economy?

Deaton looks at differences in SWB by age group. Consistent with other research, there was a clear gradient between age and life satisfaction: older people rated their wellbeing higher at all time points. There was no real secular trend for older people, but those of working age (especially 18-59 years old), had the most pronounced dip during the height of the economic downturn. Deaton says: “The oldest group, whose pension income is unlikely to depend on the market, are the least affected by the crisis.”

Focusing on trends by income, most income groups dipped in SWB during the height of the downturn in 2009, but the trend was most pronounced among those with lower incomes. This might be surprising considering that these households tend to not have much wealth tied up in the stock market. While one might predict it is because of higher unemployment, it actually turns out that SWB started to increase overall for this group several months later when the unemployment reached its lowest point.

Deaton in part believes that some people may have undergone some adaptation in their positive emotions over time, so that people acclimated to a bad economy and did not report as large decreases in happiness as might otherwise be expected:

 “Hedonic experience, particularly worry and stress, but also physical pain, deteriorated during the crisis, becoming rapidly worse during the summer and fall of 2008, recovering briefly during the year-end holidays, only to reach their worst values around the time that the stock market was at its lowest. There is a (small) increase in hedonic affect in all of these measures on St Valentine’s Day, and a much larger one around the Christmas holidays. As the stock market revived, negative affect fell. By mid-2010, there is very little trace of the crisis in these measures—though admittedly it is hard to detect small trends among the variance—even though the crisis continued in terms of lower incomes, employment, home and stock prices. These results are consistent with hedonic adaptation, especially in the positive measures (happiness, enjoyment, smiling, not being sad). Worry and stress (which behave similarly to one another) are particularly sensitive to the crisis, at least in terms of the increase in the fraction of the population reporting them. Hedonic adaptation is somewhat less clear for worry and stress than for the positive emotions.”

This gets to the heart of the debate about SWB – indeed the heart of a debate that has been argued by philosophers for centuries – how well does subjective experience represent people’s overall wellbeing? If people are adapting to bad situations by changing their expectations, then we may end up giving legitimacy to these experiences and undervaluing how bad life truly is for such people. This would matter if, for example, we wanted to design policies that compensated people for their loss in wellbeing (and not just income or other resources) from experiencing unemployment. As it turns out, the experience of being unemployed matters, but the effects of large scale unemployment are minuscule in the population overall. The stronger association appears to be with future expectation, as represented by the stock market: “today’s calculation of lifetime utility reflects not only what is happening to today’s instantaneous utility, but also the expected utility of future outcomes, predictions of which are changed by today’s news.” If we care about improving people’s short-term expectations, we should pay more attention to their SWB, if we care about improving their lives overall we may need to look elsewhere.

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