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A psychosocial explanation of economic cycles

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  • Lopes, Miguel Pereira

Abstract

How human expectations and behaviors impact the economy has been of interest to economists since at least Adam Smith. However, recent advances in psychological and social psychological research have led to an improved level of knowledge about human adaptation processes, as well as about optimistic and pessimistic expectations and their consequences on human behavior. These developments allow us to understand these adaptive expectations and behaviors in a more integrated fashion. Based on these improvements, I develop a model of human adaptation under different external circumstances and apply it to explain the ups and downs of economic cycles. A central conclusion from the model is that optimistic expectations of economic agents might not always have a positive impact over the economy. I conclude by drawing theoretical implications, as well as potential consequences for financial and economic policy-making.

Suggested Citation

  • Lopes, Miguel Pereira, 2011. "A psychosocial explanation of economic cycles," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 652-659.
    • Handle: RePEc:eee:soceco:v:40:y:2011:i:5:p:652-659
    DOI: 10.1016/j.socec.2011.05.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic cycles; Human adaptation; Optimism; Pessimism; Perceived control;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • N01 - Economic History - - General - - - Development of the Discipline: Historiographical; Sources and Methods
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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