Economic versus psychological forecasting. Evidence from consumer confidence surveys

Maurizio Bovi ()

Journal of Economic Psychology, 2009, vol. 30, issue 4, pages 563-574

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.

Keywords: Cognitive; psychology; Expectations; Forecasting; Survey; data (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:joepsy:v:30:y:2009:i:4:p:563-574

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