Mood and Economy: Why Your Happiness Matters

Oct. 16, 2009— -- Melody Warnick feels good. After the stock market crashed last year, the Iowa writer began pouring money into the stock market, bulking up her retirement accounts and buying shares in Apple and Yahoo.

"My husband and I have been pretty dang optimistic throughout the recession," said Warnick, 33, a mother of two children who has since seen her investments jump more than 30 percent. "I'm a bargain-hunter, so when stock prices dropped, I thought, 'It's a sale.'"

The economy would be much better off if more Americans were equally positive, economists say. They are closely watching for signs of optimism among the nation's consumers and hoping that some of it will rub off on others, and translate into more spending.

"People are very much affected by the mood of the moment," said Robert H. Frank, a professor of behavioral economics at Cornell University in Ithaca, N.Y. "When some people start buying, others think they must know what they're doing so they go along with it."

The domino effect may have already begun, economists say. The Dow Jones industrial average is up 15 percent this year and crossed the symbolically important 10,000 mark this week. Home prices have stabilized, and in September, furniture sales rose for the first time in a year and half.

Even consumer sentiment has improved. An ABC poll released this week showed that a growing segment of the population believes the U.S. economy is headed for better times. The only indicator bucking the trend is unemployment, which keeps rising and makes some people wonder whether the recovery can continue.

The recovery is fueled in part by attitudes: There's no doubt that finance and psychology are closely tied. Studies show that the mere act of spending money releases dopamine, a hormone -- also released during gambling and sex -- that triggers feelings of energy and euphoria.

Financial troubles, meanwhile, make people anxious, depressed and cause them to lose sleep. In the middle of the recession earlier this year, scientists found that one-third of Americans were losing sleep over the state of the economy.