Optimism, pessimism and life satisfaction: an empirical investigation

Abstract

This is an empirical investigation into life satisfaction, using nationally representative German panel data. The study confirms with modern econometric techniques the previously found substantial association with an individual’s thoughts about the future, whether they are optimistic or pessimistic about it, with life satisfaction. In addition, the investigation demonstrates that the association holds when some possibly anticipated events (like, for example, divorce and unemployment) are controlled for. Furthermore, including individuals’ optimism and pessimism about the future substantially increases the explanatory power of standard life satisfaction models. The effect size is greater for individuals who report being pessimistic than that for well-understood negative events like unemployment. These effects are attenuated though do remain substantial after controlling for the following: individual fixed effects; statistically matching on observable variables between optimistic and pessimistic individuals; and addressing the potential endogeneity of optimism and pessimism to life satisfaction.