Stress, well-being, and the economy
Starting in the middle of the last century, the presentation of economic theories has increasingly become more and more formal. From a methodical point of view, this makes economics unique among social sciences and humanities. Other social scientific disciplines, like psychology, sociology, management or other, have mainly worked with verbal or graphical models. One of the central research challenges therefore consists in finding out to what extend stress research can benefit from more mathematical rigor. If many psychologists argue that it is important to investigate chronological aspects of the appearance and handling of stress, it would be an obvious choice to develop an explicitly dynamic model that would be able to cover these aspects.
But gains should not only be expected for psychological thinking. Quite to the contrast, economics can learn a lot from psychological concepts. The dynamic of stress has not yet received a lot of attention (if at all) in any conceptual sense in economics. Yet, for economics, it would be very important to understand the processes of emergence and handling of stress more specifically. After all, the work environment and the economic world is more than full of stressors: New technologies, globalization and crises on capital market on the one, as well as Euro and debt crises on the other all confront individuals with challenges that partly seem overwhelming. A standard example for a European context is the huge rise in unemployment following the financial crisis in 2007 and the lack of perspectives for whole generations (think of youth unemployment in many southern European countries).
To understand stress consequences of economic circumstances, the rational as well as emotional reactions of individuals need to be understood. Alas, an economical concept of stress and the repercussions of stress at the macroeconomic level are currently missing. Our interdisciplinary graduate school, dealing with the timing of stress, will thus benefit from modelling traditions in economics, from concepts about stress from psychology and will integrate this into our teaching and research projects. From an economic perspective, we see our endeavours in the tradition of behavioural economics.
While we do not want to go into details at this point, a brief idea of one project would state that stress W(t) can be modeled as a (subjective) state variable (in terms of optimal control theory), whose dynamic can be described by a stochastic differential equation:
dW(t) = f (W(t),m(t))dt + g(W(t),h(t))dq(t)
In this equation, m(t) describes all measures an individual consciously chooses to reduce stress. These measures affect the change of the stress level dW(t) in a deterministic manner where details captured by the function f(.) need to be modeled in detail (cf. Waelde, 2014). This function also includes all stressors that imply a rise in stress. Unexpected stress causing (or as well stress reducing) effects are included in the function g(.). Surprises happen randomly at a certain rate, which defines the Poisson process q(t). Appraisal processes are indicated by function f(.) as well as function g(.). After the control variable m(t) has been chosen by an individual affected by stress, this equation predicts the dynamics of rising and falling stress over time.
References
Waelde, K. (2014).Stress and Coping: An Economic Approach. Mimeo Johannes-Gutenberg-University Mainz, www.waelde.com/pub.