IDEAS home Printed from https://ideas.repec.org/p/isa/wpaper/66.html
   My bibliography  Save this paper

Consumers Sentiment and Cognitive Macroeconometrics Paradoxes and Explanations

Author

Listed:
  • Maurizio Bovi

    (ISAE - Institute for Studies and Economic Analyses)

Abstract

Using data from the Business Surveys Unit of the European Commission as a long-running-continental-scale experiment, this paper examines how, and how accurately, people assess economic systems. Data show both commonsense (e.g. people know the past better than the future) and puzzling results (e.g. there is a systematic bias in forecasts). The former support the reliability of the surveys, the latter are in sharp contrast with the standard maintained hypothesis of a world populated by calculating and unemotional maximizers. The dualism of behavior may be fruitfully explored via cognitive psychology, according to which both logic and emotions systematically drive people’s choices.

Suggested Citation

  • Maurizio Bovi, 2006. "Consumers Sentiment and Cognitive Macroeconometrics Paradoxes and Explanations," ISAE Working Papers 66, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    • Handle: RePEc:isa:wpaper:66
    as

    Download full text from publisher

    File URL: http://lipari.istat.it/digibib/Working_Papers/WP_66_2006_Bovi.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Author-Name: Alan S. Blinder & Alan B. Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 327-397.
    2. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
    3. Richard M. Cyert & Herbert A. Simon & Donald B. Trow, 1956. "Observation of a Business Decision," The Journal of Business, University of Chicago Press, vol. 29, pages 237-237.
    4. Ciaran Driver & Giovanni Urga, 2004. "Transforming Qualitative Survey Data: Performance Comparisons for the UK," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(1), pages 71-89, February.
    5. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    6. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    7. repec:pri:cepsud:99blinderkrueger is not listed on IDEAS
    8. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
    9. Jeff Dominitz & Charles F. Manski, 2003. "How Should We Measure Consumer Confidence (Sentiment)? Evidence from the Michigan Survey of Consumers," NBER Working Papers 9926, National Bureau of Economic Research, Inc.
    10. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-279, May.
    11. F. Thomas Juster, 1964. "Anticipations and Purchases: An Analysis of Consumer Behavior," NBER Books, National Bureau of Economic Research, Inc, number just64-1.
    12. Melvin Stephens, 2004. "Job Loss Expectations, Realizations, and Household Consumption Behavior," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 253-269, February.
    13. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
    14. Magnus Forsells & Geoff Kenny, 2004. "Survey Expectations, Rationality and the Dynamics of Euro Area Inflation," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2004(1), pages 13-41.
    15. Christopher D Carroll, 2001. "The Epidemiology of Macroeconomic Expectations," Economics Working Paper Archive 462, The Johns Hopkins University,Department of Economics.
    16. Maurizio Bovi, 2004. "Consumer Surveys and Reality," Macroeconomics 0408012, University Library of Munich, Germany.
    17. Dr Martin Weale & Dr. James Mitchell, 2006. "A Bayesian Indicator of Manufacturing Output from Qualitative Business Panel Survey Data," National Institute of Economic and Social Research (NIESR) Discussion Papers 261, National Institute of Economic and Social Research.
    18. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 269-298.
    19. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
    20. Alan Blinder & Alan Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Working Papers 875, Princeton University, Department of Economics, Industrial Relations Section..
    21. James Mitchell & Richard J. Smith & Martin R. Weale, 2005. "Forecasting Manufacturing Output Growth Using Firm‐Level Survey Data," Manchester School, University of Manchester, vol. 73(4), pages 479-499, July.
    22. Jeff Dominitz & Charles F. Manski, 2004. "How Should We Measure Consumer Confidence?," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 51-66, Spring.
    23. Das, J.W.M. & Dominitz, J. & van Soest, A.H.O., 1997. "Comparing Predictions and Outcomes : Theory and Application to Income Changes," Other publications TiSEM 6eef11dd-0ae4-4673-b8c0-2, Tilburg University, School of Economics and Management.
    24. Dr Martin Weale & Dr. James Mitchell, 2005. "Forecasting manufacturing output growth using firm-level survey data," National Institute of Economic and Social Research (NIESR) Discussion Papers 251, National Institute of Economic and Social Research.
    25. Author-Name: Alan S. Blinder & Alan B. Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 327-397.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Niu, G., 2014. "Essays on subjective expectations and mortality trends," Other publications TiSEM b9f72836-d8ad-478b-adca-4, Tilburg University, School of Economics and Management.
    2. Maurizio Bovi, 2008. "The “Psycho-analysis” of Common People’s Forecast Errors. Evidence from European Consumer Surveys," ISAE Working Papers 95 Classification-JEL C42, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    3. Wändi Bruine de Bruin & Michael F. Bryan & Simon M. Potter & Giorgio Topa & Wilbert Van der Klaauw, 2008. "Rethinking the measurement of household inflation expectations: preliminary findings," Staff Reports 359, Federal Reserve Bank of New York.
    4. Michael Ehrmann & Damjan Pfajfar & Emiliano Santoro, 2017. "Consumers' Attitudes and Their Inflation Expectations," International Journal of Central Banking, International Journal of Central Banking, vol. 13(1), pages 225-259, February.
    5. Larsen, Vegard H. & Thorsrud, Leif Anders & Zhulanova, Julia, 2021. "News-driven inflation expectations and information rigidities," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 507-520.
    6. Ehrmann, M. & Pfajfar, D. & Santoro, E., 2014. "Consumer Attitudes and the Epidemiology of Inflation Expectations," Discussion Paper 2014-029, Tilburg University, Center for Economic Research.
    7. Michael J. Lamla & Thomas Maag, 2012. "The Role of Media for Inflation Forecast Disagreement of Households and Professional Forecasters," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1325-1350, October.
    8. Bovi, Maurizio, 2009. "Economic versus psychological forecasting. Evidence from consumer confidence surveys," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 563-574, August.
    9. Damjan Pfajfar & Emiliano Santoro, 2013. "News on Inflation and the Epidemiology of Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1045-1067, September.
    10. Lui, Silvia & Mitchell, James & Weale, Martin, 2011. "The utility of expectational data: Firm-level evidence using matched qualitative-quantitative UK surveys," International Journal of Forecasting, Elsevier, vol. 27(4), pages 1128-1146, October.
    11. repec:bny:wpaper:0075 is not listed on IDEAS
    12. Mark Doms & Norman J. Morin, 2004. "Consumer sentiment, the economy, and the news media," Finance and Economics Discussion Series 2004-51, Board of Governors of the Federal Reserve System (U.S.).
    13. Georgarakos, Dimitris & Kenny, Geoff, 2022. "Household spending and fiscal support during the COVID-19 pandemic: Insights from a new consumer survey," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 1-14.
    14. David-Jan Jansen & Matthias Neuenkirch, 2017. "News Consumption, Political Preferences, and Accurate Views on Inflation," Research Papers in Economics 2017-03, University of Trier, Department of Economics.
    15. Michael J. Lamla & Sarah Lein, 2010. "The Euro Cash Changeover, Inflation Perceptions and the Media," KOF Working papers 10-254, KOF Swiss Economic Institute, ETH Zurich.
    16. Olympia Bover, 2015. "Measuring expectations from household surveys: new results on subjective probabilities of future house prices," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(4), pages 361-405, November.
    17. Patrick Hirsch & Lars P. Feld & Ekkehard A. Köhler, 2023. "Breaking Monetary Policy News: The Role of Mass Media Coverage of ECB Announcements for Public Inflation Expectations," CESifo Working Paper Series 10285, CESifo.
    18. Bennani, Hamza, 2018. "Media coverage and ECB policy-making: Evidence from an augmented Taylor rule," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 26-38.
    19. Pesaran, M. Hashem & Weale, Martin, 2006. "Survey Expectations," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 14, pages 715-776, Elsevier.
    20. Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-1377, June.
    21. Ryan Chahrour & Kristoffer Nimark & Stefan Pitschner, 2021. "Sectoral Media Focus and Aggregate Fluctuations," American Economic Review, American Economic Association, vol. 111(12), pages 3872-3922, December.

    More about this item

    Keywords

    Beliefs; survey research; consumer sentiment; cognitive economics.;
    All these keywords.

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isa:wpaper:66. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Stefania Rossetti (email available below). General contact details of provider: https://edirc.repec.org/data/istgvit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.