Date Published: March 7, 2018
Publisher: Public Library of Science
Author(s): Marco Bertoni, Luca Corazzini, Hannes Schwandt.
Social scientists have postulated that the discrepancy between achievements and expectations affects individuals’ subjective well-being. Still, little has been done to qualify and quantify such a psychological effect. Our empirical analysis assesses the consequences of positive and negative affective forecasting errors—the difference between realized and expected subjective well-being—on the subsequent level of subjective well-being.
We use longitudinal data on a representative sample of 13,431 individuals from the German Socio-Economic Panel. In our sample, 52% of individuals are females, average age is 43 years, average years of education is 11.4 and 27% of our sample lives in East Germany. Subjective well-being (measured by self-reported life satisfaction) is assessed on a 0–10 discrete scale and its sample average is equal to 6.75 points.
We develop a simple theoretical framework to assess the consequences of positive and negative affective forecasting errors—the difference between realized and expected subjective well-being—on the subsequent level of subjective well-being, properly accounting for the endogenous adjustment of expectations to positive and negative affective forecasting errors, and use it to derive testable predictions. Given the theoretical framework, we estimate two panel-data equations, the first depicting the association between positive and negative affective forecasting errors and the successive level of subjective well-being and the second describing the correlation between subjective well-being expectations for the future and hedonic failures and successes. Our models control for individual fixed effects and a large battery of time-varying demographic characteristics, health and socio-economic status.
While surpassing expectations is uncorrelated with subjective well-being, failing to match expectations is negatively associated with subsequent realizations of subjective well-being. Expectations are positively (negatively) correlated to positive (negative) forecasting errors. We speculate that in the first case the positive adjustment in expectations is strong enough to cancel out the potential positive effects on subjective well-being of beaten expectations, while in the second case it is not, and individuals persistently bear the negative emotional consequences of not achieving expectations.
Expectations do matter in life. They represent a reference according to which individuals evaluate their economic, social and psychological conditions, and make important prospective decisions . For instance, expectations and aspirations play a crucial role in determining investment in education [2,3], consumption choices , bequests decisions , and long-term career choices .
Let St be individual’s realized life satisfaction for period t. Deaton  argues that the evaluation of subjective well-being is a relative one, as people compare their situation with a subjective benchmark, a “shifting standard” that depends on one’s expectations and past experiences. We follow this suggestion and postulate that realized life satisfaction depends on its latent dimension—St*—and on the affective forecasting error St*−Et−1(St) according to the following equation:
St=St*+δ+1[St*−Et−1(St)>0]+δ−1[St*−Et−1(St)<0].(1) Social scientists have theorized that subjective well-being is a relative concept, that also depends on the discrepancy between its realization and an expected level [19–21]. Our study develops a simple theoretical framework to discuss the matter, and reports preliminary empirical evidence in favor of this hypothesis. Source: http://doi.org/10.1371/journal.pone.0192941