Happiness Dynamics, Reference Dependence, and Motivated Beliefs in U.S. Presidential Elections

Collecting and analyzing panel data over the last four U.S. presidential elections, we study the drivers of self-reported happiness. We relate our empirical findings to existing models of elation, reference dependence, and belief formation. In addition to corroborating previous findings in the literature (hedonic asymmetry/hedonic loss aversion, hedonic adaptation and motivated beliefs), we provide novel results that extend the literature in four dimensions. First, happiness responds to changes relative to both the political status quo (i.e., the incumbent presidential party) and the expected electoral outcome, providing support for two major hypotheses regarding reference point formation. Individuals exhibit hedonic loss aversion to deviations from expectations, but hedonic loss neutrality to changes from the status quo. Second, the speed of hedonic adaptation to deviations from the status quo is significantly slower than the speed of hedonic adaptation to surprises. Third, expectations affect happiness in a nonlinear way, consistent with Gul’s model of disappointment aversion, but contrary to other influential reference-dependent models. Fourth, both “objective” and motivated subjective beliefs matter for the happiness reactions, although subjective beliefs matter more.