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Economic versus psychological forecasting. Evidence from consumer confidence surveys

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Author Info

  • Bovi, Maurizio

Abstract

Permanent and widespread psychological biases affect both the subjective probability of future economic events and their retrospective interpretation. They may give rise to a systematic gap between (over-critical) judgments and (over-optimistic) expectations - the "forecast" error. When things go bad, then, psychology suggests that people tend to become particularly bullish, amplifying the forecast error. Also, psychology argues that personal/future conditions are systematically perceived to be better than the aggregate/past ones. All this sharply contrasts with standard economic assumptions. Evidence from a unique dataset covering 10 European countries over 22Â years confirms the presence of structural psychologically driven distortions in people's judgments and expectations formation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 30 (2009)
Issue (Month): 4 (August)
Pages: 563-574

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Handle: RePEc:eee:joepsy:v:30:y:2009:i:4:p:563-574

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Web page: http://www.elsevier.com/locate/joep

Related research

Keywords: Cognitive psychology Expectations Forecasting Survey data;

References

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Citations

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Cited by:
  1. Dickerson, Andy & Green, Francis, 2012. "Fears and realisations of employment insecurity," Labour Economics, Elsevier, vol. 19(2), pages 198-210.
  2. Ulrich Witt & Martin Binder, 2011. "Disentangling Motivational and Experiential Aspects of "Utility" - A Neuroeconomics Perspective," Papers on Economics and Evolution 2011-20, Max Planck Institute of Economics, Evolutionary Economics Group.
  3. Ruediger Bachmann & Steffen Elstner, 2013. "Firms' Optimism and Pessimism," CESifo Working Paper Series 4176, CESifo Group Munich.
  4. Maurizio Bovi, 2014. "Shocks and the Expectations Formation Process. A Tale of Two Expectations," Natural Field Experiments 00390, The Field Experiments Website.
  5. Bovi, Maurizio, 2013. "Are the representative agent’s beliefs based on efficient econometric models?," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 633-648.

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