Predicting the macroeconomic effects of abstract and concrete events
AbstractThis paper presents experimental evidence that non-experts do not distinguish between macroeconomically relevant and irrelevant events in the way economic theory would suggest. Students were asked to predict the likely consequences of several events in fictitious newspaper reports on GDP, inflation, unemployment, and aggregate sales. They overestimate the effects of irrelevant events, especially if those events are easy to imagine. The magnitudes of the predicted effects are clearly related to the concreteness of the events. The results are compatible with the use of the availability heuristic in the process of forming economic expectations.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Political Economy.
Volume (Year): 24 (2008)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/inca/505544
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