Political Polarization and Expected Economic Outcomes

52 Pages Posted: 28 Oct 2020

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

Multiple version iconThere are 4 versions of this paper

Date Written: October 27, 2020

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 disagree strongly about the likely outcome of the election, despite widespread publicly available polling information. Most Democrats are very confident in a Biden win while most Republicans are very confident in a Trump win. Second, respondents predict a fairly rosy economic scenario if their preferred candidate wins but a dire one if the other candidate wins. Since most respondents are confident in their favored outcome, unconditional forecasts are similar across parties despite the fact that underlying probability distributions and conditional forecasts are very different. Third, when presented with recent polling data, most voters change their views by little unless they are independent and/or have relatively weak priors about the outcome. Information that emphasizes the uncertainty in polling data has larger effects in terms of reducing polarization in expected probabilities over different electoral outcomes. Fourth, exogenous information that changes individuals’ probability distribution over electoral outcomes also changes their unconditional 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 (October 27, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-158, Available at SSRN: https://ssrn.com/abstract=3720679 or http://dx.doi.org/10.2139/ssrn.3720679

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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