I have wondered if the greatest strength of literature, and all art, is the ability to expand someone's perspective.
The wider our "thought vocubulary", the more we are capable of seeing, feeling, and understanding our world. I think this is a powerful and actual effect of encountering literature and art.
Literature presents a very strong case of "thought expansion" in the way that point of view is explored along with conceptual thinking, creative thinking, the overlooked power of "mere' vocabulary" and the communication of a writer's inner-life.
Literature, like all art, can be escapist, in that it helps us remove ourselves from unpleasant realities or humdrum daily existence. Yet it can also, again like all art forms, cause us to engage more fully in the the world around us, as post #4 points out. Sometimes, I'm affected not only by the story, but by the artistry of the author, in terms of their prose, turns of phrase, and so on. Jonathan Franzen's work strikes me that way. His stories aren't all that compelling to me (though they're not bad.) What strikes me as special about his work is the deftness with which he can spin a phrase.
I personally prefer works that combine comedy and tragedy. One example is "A Good Man Is Hard to Find," by Flannery O'Connor. Another example is "Guests of the Nation," by Frank O'Connor. Works such as these strike me as especially rich and moving because they seem to do the most justice to the real complexities of life.
This is something I try to convey to my students, who many times don't understand why we are reading books about people in a time and place much different from the lives they live. Even if a book doesn't spark any emotions whatsoever (thought I think most do to some extent) it can still have an impact on our lives. A novel can help us see perspectives on things we may not have been able to understand before. Fiction, though it's not based entirely on truth, can still teach us about other people and other cultures more than any textbook can. Personally, I didn't understand anything about the middle east until I read The Kite Runner and A Thousand Splendid Suns. Literature can open our minds to so many things and help us to better understand the world around us.
I, too, believe that literature has the possibility to affect people. The problem arises when a person fails to become engaged by a text. That being said, all people enjoy something. Therefore, they simply need to find texts which appeal to their "likes."
A good book can certainly affect me! Sometimes I read a book that makes me consider a topic from a new perspective. Sometimes I challenge my intellect and come out smarter for having pushed myself to read something more demanding than normal. Sometimes I so enjoy the storytelling or the plot that I can hardly wait to share the title with all my friends in the hopes that someone can read it and then we can talk about it! All of those are effects on me as a reader.
Literature can affect an entire society, too, on occasion. Uncle Tom's Cabin (Stowe) is one example, and J'Accuse (Zola) is another. This is rare, though, and for the most part, literature affects us on an individual level, allowing us to look within ourselves better or to learn something about the world outside ourselves. I do think that younger readers are often more greatly affected by literature. When I was a teen and in my early twenties, I was more profoundly influenced by what I read, I think because I was just beginning to formulate my ideas about myself and the world. I will say that when I read something with a tragic ending, it can make me depressed for quite some time, and a happy ending can certainly still lift my spirits.
I think literature only has the ability to affect the lives of people who really get into the books they read. You have to have a certain type of personality, I think, to care so much about characters in literature that your life is affected by them. Unless you have that sort of personality, I don't think literature can change your life.
I think all literature has the potential to affect people by allowing us to read and relate to things going on in the text. I'm not sure there are many novels that have been life changing on a global scale, but everyone who reads can name at least one or two books that really made us think differently, or brought our attention to something that we had not thought about before.
Whether tragedy or books with happy endings, good literature has the potential to spark real human emotions and possibly cause readers to experience something through words that they have not experienced in real life. This then opens the door for thought and discussion which challenges us and others.