Evidence on the links between household finances, expectations and emotional well being

Finance

Working Paper

Cocco J;Gomesz F;Lopes P

João Cocco Francisco Gomes

2017

We use panel data and an instrumental variables approach to provide evidence that households who experience deteriorations in their finances become more pessimistic going forward and suffer from a reduction in emotional wellbeing. The negative impact on emotional wellbeing in turn leads to an increased probability of a further decline in financial situation. It also affects the nature of expectation errors: more depressed individuals are more likely to make forecasts that are too pessimistic. Our results contribute to the understanding of the drivers of household finances and expectations formation

Household finance; Psychological well-being; Experiences; Expectation errors

Working Paper

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