The Economic Consequences of Despair

This paper examines despair from the perspectives of many disciplines to define despair and to characterize the despairing individual, his motivations, and his capacity for decision-making. Two models incorporating despair as a key element are then proposed. Using these models as a framework, the economics literature is examined to determine the extent to which economics has, at least implicitly, recognized despair, without necessarily confronting it either in theory or policy design, and argue why this failure has weakened both our theory and our policy. The paper concludes with the suggestions that economics can and, perhaps, should incorporate despair, narrowly, and economic agents’ emotional state, generally, into its theoretical and policy analyses.