Predicting Well-Being in Europe? The Effect of the Financial Crisis

Has the worst financial and economic crisis since the 1930s reduced the subjective wellbeing function's predictive power? Regression models for happiness are estimated for the three first rounds of the European Social Survey (ESS); 2002, 2004 and 2006. Several explanatory variables are significant with the expected signs and an average determination coefficient around 0.25. Based on these estimated parameters happiness is predicted for the latest three rounds of the ESS; 2008, 2010 and 2012. Happiness is slightly underestimated in both 2008 and 2010, e.g. actual happiness generally is above predicted happiness. Nevertheless, 73% of the predictions in 2008 and 57% of predictions in 2010 were within the margin of error. These correct prediction percentages are not unusually low - rather they are slightly higher than before the crisis. It is surprising that happiness predictions are not adversely affected by the crisis. On the other hand, results are consistent with the adaption hypothesis. The same exercise is conducted applying life satisfaction instead of happiness, but we reject, against expectation, that (more transient) happiness is harder to predict than life satisfaction. Fifteen ESS countries surveyed in each of the six surveys are included in the study.