Pessimistic Bias Strikes Again?
I’ve been arguing for years that non-economists suffer from pessimistic bias. They underestimate the recent past, present, and future performance of the economy. A new piece in the Journal of Economic Psychology is consistent with my thesis: When you ask people to estimate the net effect of annual growth in excess of 1%, almost everyone drastically underestimates:
Most participants were dramatically off the mark. Only around 10-15% of the participants gave estimations between 50% less and 100% more than the true value of 238.64%. Furthermore, the majority of the false estimations were systematically below the true value of 238.64%, which was underestimated by 88.9-92.1% of the participants.
Also consistent with my previous results: Experts and men underestimated less.
My question: Wouldn’t people have made the same mistake if the question were about the growth of algae? If so, this paper is primarily about innumeracy, not economic illiteracy.