CONSUMER BEHAVIOR AND FLUCTUATIONS IN ECONOMIC ACTIVITY

Frank Westerhoff

Advances in Complex Systems (ACS), 2005, vol. 08, issue 02n03, 209-215

Abstract: We develop a simple Keynesian type business cycle model in which heterogeneous agents are either optimistic or pessimistic. If the majority of the agents are optimistic, then consumption expenditures are high and the economy booms, otherwise consumption expenditures are low and the economy is in a recession. Within our model, the sentiment of the agents is affected by their social interactions. For instance, people regularly meet each other and thus their mood may change. Overall, our model suggests that swings in consumer confidence may generate irregular fluctuations in economic activity.

Keywords: Econophysics; consumer sentiment; optimism and pessimism; social interactions; opinion formation; business cycles (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1142/S0219525905000452

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