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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.

Suggested Citation

  • Roos, Michael W.M., 2008. "Predicting the macroeconomic effects of abstract and concrete events," European Journal of Political Economy, Elsevier, vol. 24(1), pages 192-201, March.
    • Handle: RePEc:eee:poleco:v:24:y:2008:i:1:p:192-201
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    References listed on IDEAS

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    Cited by:

    1. Leiser, David & Benita, Rinat & Bourgeois-Gironde, Sacha, 2016. "Differing conceptions of the causes of the economic crisis: Effects of culture, economic training, and personal impact," Journal of Economic Psychology, Elsevier, vol. 53(C), pages 154-163.
    2. David Leiser & Nofar Duani & Pascal Wagner-Egger, 2017. "The conspiratorial style in lay economic thinking," PLOS ONE, Public Library of Science, vol. 12(3), pages 1-17, March.
    3. 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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