Political Polarization and Expected Economic Outcomes

55 Pages Posted: 28 Oct 2020 Last revised: 29 Mar 2021

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

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Date Written: March 19, 2021

Abstract

We use a large-scale representative survey of households from October 19-21 that elicits respondents’ expectations about the presidential election’s outcome as well as their economic expectations to document several new facts. First, people disagreed strongly about the likely outcome of the election, despite the widespread availability of public polling information. Most Democrats were very confident in a Biden win while most Republicans were very confident in a Trump win. Second, respondents predicted a fairly rosy economic scenario if their preferred candidate won but a dire one if the other candidate won. Since most respondents were confident in their favored outcome, pre-election unconditional forecasts were similar across parties despite the fact that underlying probability distributions and conditional forecasts were very different. Third, when presented with recent polling data, most voters changed their views by little unless they were independent and/or had relatively weak priors about the outcome. Information that emphasized the uncertainty in polling data had larger effects in terms of reducing polarization in expected probabilities over different electoral outcomes but the source of the information played little role. Fourth, exogenous information that changed individuals’ probability distribution over electoral outcomes also changed their unconditional macroeconomic forecasts in a corresponding manner. These changes in economic expectations in turn are likely to affect household economic decisions.

Keywords: Elections, political views, COVID-19, expectations, randomized controlled trial, Bayesian learning.

JEL Classification: E31, C83, D84, J21, J26

Suggested Citation

Coibion, Olivier and Gorodnichenko, Yuriy and Weber, Michael, Political Polarization and Expected Economic Outcomes (March 19, 2021). Chicago Booth Research Paper No. 20-45, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=3720029 or http://dx.doi.org/10.2139/ssrn.3720029

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
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Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Michael Weber (Contact Author)

University of Chicago - Finance ( email )

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United States

National Bureau of Economic Research (NBER)

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