Economists must get more in touch with our feelings

13th October, 2022

Feelings matter. That is obvious enough. Less obvious is what social scientists and policy wonks should do about it. I’ve written many times about efforts to measure happiness, but such efforts have delivered insights that sometimes seem underwhelming. It turns out that people are less satisfied with their lives when they are in poor health or unemployed or their marriages are falling apart. These are hardly revolutionary counterintuitions.

A common question to measure wellbeing is simply to ask people to evaluate their own lives: how satisfied are they, on a scale of 0-10? A sensible question, but it seems crude compared with the battery of data we can collect on prices and incomes. Indeed, I once gently teased the happiness research community by suggesting we wouldn’t learn much about how to reform a nation’s economic institutions by asking citizens, “Overall, how rich do you think you are these days, on a scale of 0-10?” The question seems silly and a reminder of how little we really know about wellbeing.

Well, the joke is on me. Perhaps that is precisely the question we should be asking. A recent study by Federica Liberini, Andrew Oswald, Eugenio Proto and Michela Redoano looked at the impact of how people feel about their finances. Liberini and her colleagues looked at a question from a long-running academic survey, Understanding Society: “How well would you say you yourself are managing financially these days?”. Answers varied from 1 (living comfortably) to 5 (finding it very difficult).

The researchers found that people who said they were living comfortably were more likely to support the Remain campaign in the UK. Those who found their finances very difficult tended to sympathise with Vote Leave. Indeed, write the researchers, “UK citizens’ feelings about their incomes were a substantially better predictor of pro-Brexit views than their actual incomes.”

Then there is inequality. Objectively speaking, it is far from clear that income inequality is rising. In the UK, income inequality rose to high levels during the 1980s and has broadly stayed there ever since. Globally, there is no obvious cause for alarm either. Incomes have risen much faster in China and India — two large, poor countries — than in the US or Europe, putting downward pressure on income inequality.

But people’s feelings? They tell a different story. Jon Clifton, the head of Gallup, which has been tracking wellbeing around the world for many years, notes a polarisation in people’s life-evaluations. Compared with 15 years ago (before the financial crisis, smartphones and Covid-19) twice as many people now say they have the best possible life they could imagine (10 out of 10); however, four times as many people now say they are living the worst life they can conceive (0 out of 10). About 7.5 per cent of people are now in psychological heaven, and about the same proportion are in psychological hell.

Does this reflect our subjective realities, or have we all just learnt to hype up everything, good or bad? I am not sure, but Gallup is not alone in finding clear evidence of widespread psychological distress.

“This looks like something that is getting ready to explode,” said Nobel laureate Daniel Kahneman, speaking at a recent conference in Oxford on wellbeing research and policy. Oswald, one of the authors of the Federica Liberini study, was also speaking there and presented a grim series of slides on mental distress and trust in government. “We need detailed data on feelings of human resentment, frustration, anger and falling behind,” said Oswald.

But we should not forget to collect data on more hopeful emotions, too. At the same conference, Carol Graham of the Brookings Institution focused on hope. It’s important, said Graham, because “people who believe in their futures are far more likely to invest in them”. Hope triggers positive action.

For example, a study conducted by Graham and Kelsey O’Connor found that in the US, people who are hopeful for the future have tended to live longer — and that this optimism is a better predictor of low mortality than income. Another study (by Graham and Julia Pozuelo) found that in a low-income neighbourhood in Lima, Peru, young people had high aspirations. Most aimed to go to university, even though none of their parents did.

The higher the aspirations for the future, the more promising the actions in the present. For example, aspiring students were less likely to abuse drugs and spent more time on schoolwork. Meanwhile, in St Louis, Missouri, Graham and O’Connor found that young, low-income African Americans had higher educational aspirations and more support for those aspirations than young, low-income white people. This was despite the fact that, objectively, the white respondents seemed in a better situation. They had more income, more access to health insurance, were more likely to have both parents living in the home and more likely to have a parent with some college experience.

As in other fields, there is a gap between people’s objective circumstances and how they feel about those circumstances. By studying that gap, we can hope to make better, more responsive policies. If we do not, then there is a flip side to optimism, clearly expressed in the title of Graham’s forthcoming book: Hope and Despair.

Written for and first published in the Financial Times on 5 August 2022.

The paperback of The Data Detective was published on 1 February in the US and Canada. Title elsewhere: How To Make The World Add Up.

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