Bad economic news hits people harder than good news
Religion & Liberty Online

Bad economic news hits people harder than good news

From the perspective of well-being, is it better to win $100 or to not lose $100?

If you assume that winning is obviously better, you’ve probably never been in a casino. Almost anyone who has gained and lost similar sums of money gambling knows that losing hurts more. Humans seem to be hard-wired for what is called loss aversion.

Loss aversion, a concept in cognitive psychology first identified by Amos Tversky and Daniel Kahneman, can be summed up as “losses loom larger than gains.” Studies have shown that the pain of losing is psychologically about twice as powerful as the pleasure of gaining.

The same effect appears to affect how we feel about national economic growth and decline. According to a study published in the May 2018 edition of The Review of Economics and Statistics, our personal well-being is more than twice as sensitive to economic decline as it is to economic growth. Here are some of the study’s key takeaways:

• “Subjective well-being is more sensitive to decreases in national income than it is to equivalent increases.”

• “The results from the three data sets would suggest that some 2 percent to 6 percent of economic growth would be required to offset just 1 percent of economic contraction.”

• A rising unemployment rate was associated with a reduction in personal well-being.

• “Our work suggests a need for nuanced growth policies and the careful use of economic growth data when considering welfare effects in terms of well-being.”

What should Christians take away from this study? This finding should remind is that psychological factors must shape our rhetoric when discussing economic issues. For example, rather than merely touting the latest figures on economic growth or the upturn in the business cycle, we need to account for how people perceive the psychological toll of economic decline, such as during recessions. By being aware of how acutely economic downturns are felt and how long the effect lasts, we can make more effective arguments about how economic growth affects human flourishing.

Joe Carter

Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).