Macroeconomics

Purchasing power parity

Philosophy

Social psychology

Economics

Market economy

Cross country

Keynesian economics

Exchange rate

Psychology

Public economics

Epistemology

Econometrics

Gross domestic product

Pessimism

International economics

Positive economics

Standard of living

Optimism

World Economy

Optimism and pessimism influence economic choices. If consumers are optimistic, they tend to spend a greater proportion of their budget shares on luxuries and a lesser proportion on necessities. Many models of consumer expenditure do not take into account the influence of optimism and pessimism. This paper demonstrates a way to indirectly measure optimism and pessimism by focusing on patterns in Engel curve residuals for necessities and luxuries. Using the revised International Comparison Program (ICP) 2005 data covering 144 countries, this paper presents economy‐wide optimism and pessimism indicators. These indicators provide a useful complement to traditional economic measures of standard of living such as real gross domestic product (GDP) in purchasing power parity (PPP) terms. These indicators are non‐economic in traditional terms. However, since they are constructed as residuals from an economic analysis, they could act as a very useful complement to traditional economic indicators and, as such, may be termed “quality of life” indicators.

Optimism and pessimism: A cross‐country comparison