Motivated Beliefs in Macroeconomic Expectations

63 Pages Posted: 11 Feb 2021 Last revised: 5 Aug 2023

See all articles by Stefano Cassella

Stefano Cassella

Tilburg University- School of Economics and Management

Benjamin Golez

University of Notre Dame

Huseyin Gulen

Mitchell E. Daniels, Jr School of Business, Purdue University; Purdue University - Krannert School of Management

Peter Kelly

University of Notre Dame

Date Written: August 4, 2023

Abstract

Theories of motivated beliefs suggest that individuals derive current utility from anticipating better personal outcomes. We provide evidence that individuals tie macroeconomic outcomes to personal-level outcomes. This suggests that motivated beliefs are also important for macroeconomic expectations. Analyzing macroeconomic expectations of professional forecasters, we confirm key predictions of motivated beliefs theories. We show that (1) there is an upward-sloping term structure of optimism (horizon bias), (2) optimism varies with macroeconomic uncertainty and anxiety, and (3) forecasters react more strongly to good news than bad news. Our findings have implications for asset pricing, personal finance and macro-finance.

Keywords: Motivated beliefs, Expectation formation, Wishful thinking, Economic forecasting, Economic models, Expectations, Optimism bias, Survey forecasts, Macroeconomic forecasts.

JEL Classification: G02, C53, D83, D84, D9, E37, E7

Suggested Citation

Cassella, Stefano and Golez, Benjamin and Gulen, Huseyin and Kelly, Peter, Motivated Beliefs in Macroeconomic Expectations (August 4, 2023). Available at SSRN: https://ssrn.com/abstract=3759035 or http://dx.doi.org/10.2139/ssrn.3759035

Stefano Cassella (Contact Author)

Tilburg University- School of Economics and Management ( email )

Professor de Moorplein 521
Tilburg, 5037
Netherlands

Benjamin Golez

University of Notre Dame ( email )

256 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-1458 (Phone)

HOME PAGE: http://business.nd.edu/BenGolez/

Huseyin Gulen

Mitchell E. Daniels, Jr School of Business, Purdue University ( email )

403 Mitch Daniels Blvd.
West Lafayette, IN 47907
United States

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Peter Kelly

University of Notre Dame ( email )

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