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Predicting the macroeconomic effects of abstract and concrete events

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  • Roos, Michael W.M.

Abstract

This 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 Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 24 (2008)
Issue (Month): 1 (March)
Pages: 192-201

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Handle: RePEc:eee:poleco:v:24:y:2008:i:1:p:192-201

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Web page: http://www.elsevier.com/locate/inca/505544

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References

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  1. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  2. Jörg Döpke & Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2006. "Sticky Information Phillips Curves: European Evidence," Discussion Papers of DIW Berlin 615, DIW Berlin, German Institute for Economic Research.
  3. Michael W. M. Roos, 2005. "TV Weather Forecast or Look through the Window? Expert and Consumer Expectations about Macroeconomic Conditions," Kyklos, Wiley Blackwell, vol. 58(3), pages 415-437, 07.
  4. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe, 2006. "Seemingly Irrelevant Events Affect Economic Perceptions and Expectations: The FIFA World Cup 2006 as a Natural Experiment," IZA Discussion Papers 2275, Institute for the Study of Labor (IZA).
  5. John Duffy & Eric O'N. Fisher, 2005. "Sunspots in the Laboratory," American Economic Review, American Economic Association, vol. 95(3), pages 510-529, June.
  6. Slacalek, Jirka & Fritsche, Ulrich & Dovern, Jonas & Döpke, Jörg, 2005. "European inflation expectations dynamics," Discussion Paper Series 1: Economic Studies 2005,37, Deutsche Bundesbank, Research Centre.
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Cited by:
  1. Tideman, T. Nicolaus & Plassmann, Florenz, 2010. "Pricing externalities," European Journal of Political Economy, Elsevier, vol. 26(2), pages 176-184, June.

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