We are being pummeled by measures of our decline: indices of stock prices and house prices, consumer confidence and manufacturing activity, and rates of unemployment, foreclosure and GDP contraction. These numbers are wielded to suggest a wrenching change in our lives. But what do they all add up to, really?
The bottom line is our happiness — the overall quality of our lives. Ultimately, if we care about these calculations at all, it must be because we believe they are guides to, or indicators of, happiness. These numbers are usually presented to us as if they are directly related to happiness. One common metric, the addition of the unemployment and inflation rates, is even called the “misery index.”
To check whether happiness has really declined at the same time that our economy has been in freefall, doctoral student Xi Zou and I analyzed the results of a survey we have administered to more than 500 business people in the last two years.
Importantly, our sample is not random. Our respondents are employed young executives, mostly based in New York or London, on the front lines of the financial crisis. Their incomes are high. Most of them work in financial services or within the gravitational pull of that industry. In the last year, their incomes and job security have fallen, and some of their organizations have collapsed. They are working long days on problems that seem unsolvable, and many of their friends and colleagues have been laid off. They have been called greedy and reckless by political leaders. If there is a negative impact of the crisis on happiness, it should show up in this group.
Yet the overall happiness in this group has not changed as the financial crisis has unfolded. This graph presents a happiness index, where 100 would indicate that all respondents reported maximum life satisfaction. One line shows the average for all of our respondents, the other distinguishes those who work for financial services firms. When our respondents are taken as a whole, the happiness level has been remarkably stable over the crisis. For those working in financial services, there was an initial dip in happiness over the first eight months of the crisis, but there has been a recent rebound. This reflects a familiar phenomenon that changes in our lives and work may have a pronounced initial impact on happiness, but over time we become acclimated to them and return toward our personal happiness set point.
Does this mean that the financial crisis and recession don’t matter for happiness? We wouldn’t go that far. There is evidence elsewhere that higher unemployment has a negative impact on happiness, even for those who remain employed. Furthermore, our surveys also indicate a negative overall trend in job satisfaction, which is more pronounced in financial services. Job satisfaction weighs substantially on happiness, so if this trend continued, it would ultimately decrease happiness. And while our respondents have suffered substantial losses of income and wealth in the last year, they remain relatively wealthy. Changes in income weigh more heavily on the happiness of people who are closer to subsistence levels. But despite these caveats, our conclusion is that the crisis has so far had little impact on well-being, even for those in the hard-hit financial services sector.
This may come as a shock to anyone who works in finance or knows people who do. There is certainly more moping and doomsaying in this group than there was a year ago. But negative moods are not the same thing as low life satisfaction. And expectations of unhappiness are very often unrealized, as research has shown that people consistently underestimate their capacity to adjust to negative life and career events, and overestimate the impact those events will have on their happiness.
Our conclusion also seems hard to reconcile with some recent headlines. After all, didn’t we just read about a billionaire stepping in front of a train? The reason such events are newsworthy is because they are rare. And our data do not say that everyone has maintained the same level of happiness over the last year, just that the average has stayed the same. People do differ substantially in their happiness, but these differences are more a function of the people themselves than of the economy.
Differences in approaches to self-motivation are powerful in explaining happiness and can help explain different individual responses to the crisis. In fact, the purpose behind our research was to explore these individual differences, and we have found three such approaches. Importantly, they suggest strategies that can help us maintain our happiness.
We have found that people who are disposed to comparisons are less happy. Of course, relative status matters for happiness, but people who think more about their position compared to others are less satisfied with their lives. In times of loss, it is also happiness-destroying to make comparisons to yourself in the past. It is likely that this has created despondency in a few of the formerly super-rich who are now merely rich. The prescription that results from this evidence is to think less about what others have and to not dwell on what you have lost.
We have also found that people who are vigilant about protecting what they have and value — whatever it is — are happier. We recommend that you make salient what you have now that you want to keep, and be conscious of how you might lose it.
Finally, people who are eager in pursuit of some potential gain are also happier. Be explicit about what it is you want for the future, lay out concrete plans to get it and think about how you’ll feel when you do so.
Our experiments suggest that a useful exercise for putting yourself into the mindset associated with happiness would be to buy a small notebook and regularly write about what you have now that is valuable to you, what threats you must protect against, what you hope for the future and what it will feel like when those hopes are realized. Happily, the same exercise will have positive spillovers on your creativity, risk-management and decision-making abilities. And remember that the relationship between the economy and life satisfaction is muted and that our capacity to adjust to negative events is great. The biggest influence on the ultimate outcome — happiness — is not what happens to us but how we motivate ourselves.
Paul Ingram is the Kravis Professor of Business in the Management Division and faculty director of the Columbia Senior Executive Program at Columbia Business School.