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Linkedin stock crash4/20/2023 By December 2008, retirement accounts had lost almost one-third of their value on average, and total losses were estimated at $2.8 trillion ( Soto, 2008). After a small uptick, the DJIA fell throughout the month by the end of October, the index had reached its lowest level since 2003. In the 8-day trading period that began on October 1, 2008, the closing value of the Dow Jones Industrial Average (DJIA) fell by nearly 2,400 points or roughly 22%. households brought on by the stock market crash that occurred in the fall of 2008. In this study, we identify the effect of large wealth losses on mental health by focusing on the immediate and largely unexpected declines in the net worth of U.S. If the psychological or economic consequences of losses differ in these ways, then prior studies that focus on the effects of sudden gains in socioeconomic status may offer little guidance on the effects of losses on mental health. It could take years of favorable stock market returns to recapture wealth losses, whereas small losses can be offset by an increase in work hours or a short-term change in consumption patterns. Further, the effects of large wealth losses may be more disruptive than generalizations of the effects of small gains or losses may suggest. One explanation for this effect is loss aversion, which explains that the disutility of losing a good is greater than the utility of obtaining it (e.g., Kahneman and Tversky, 1984). Subjects in experiments often place a higher value on a good that they own compared to an identical good that they do not own (the endowment effect). Results from economics and psychology experiments provide ample evidence that individuals respond differently to losses than gains. Research on the consequences of wealth loss is especially important if the effect of wealth is asymmetric. This may be because these events typically confound the wealth effects they engender. However, the mental health effects of losing money have not been examined, despite the fact that a number of life events such as divorce, widowhood, and expensive medical episodes can trigger significant declines in material well-being. These studies show that income increases associated with lottery winnings lead to mental health improvements (e.g., Apouey and Clark, 2010), while receiving a bequest has no significant effect on mental health (e.g., Kim and Ruhm, 2010). ![]() Most prior studies that use exogenous shocks to identify the causal effects of income on health exploit natural experiments that increase income or lead to wealth accumulations of these, only a few examine mental health outcomes. Do sudden, large wealth losses affect mental health? Despite a large literature on the relationship between socioeconomic status and health, the answer to this question is not known.
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