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The asymmetric effect of expectations on subjective well-being

Working Paper 2015-374

Abstract

We empirically explore the relationship between expectations and subjective well-being. Theoretical models predict that expectations can influence experienced utility in two ways: (i) directly as anticipatory emotions in the form of savouring or dread; (ii) indirectly as internal reference levels in the form of deviations between expectations and actual achievements. We use twelve waves of the British Household Panel Survey to empirically investigate the double effect of expectations on experienced utility, as proxied by subjective well-being. We find a strong asymmetry in the way expectations affect subjective well-being. Negative deviations from expectations have a strong negative effect on subjective well-being, while the effect of positive deviations is weaker and sometimes insignificant. Expecting a worsening has a larger impact on subjective well-being than expecting an improvement.

Authors: Marta Barazzetta.

Keywords: Subjective well-being, expectations, disappointment aversion, panel data, BHPS.
JEL: C23, D84, I31.