Forecasted economic change and the selffulfilling prophecy in economic decisionmaking

Diamantis Petropoulos Petalas*, Hein Van Schie, Paul Hendriks Vettehen

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This study addresses the self-fulfilling prophecy effect, in the domain of economic decisionmaking. We present experimental data in support of the hypothesis that speculative forecasts of economic change can impact individuals' economic decision behavior, prior to any realized changes. In a within-subjects experiment, participants (N = 40) played 180 trials in a Balloon Analogue Risk Talk (BART) in which they could make actual profit. Simple messages about possible (positive and negative) changes in outcome probabilities of future trials had significant effects on measures of risk taking (number of inflations) and actual profits in the game. These effects were enduring, even though no systematic changes in actual outcome probabilities took place following any of the messages. Risk taking also found to be reflected in reaction times revealing increasing reaction times with riskier decisions. Positive and negative economic forecasts affected reaction times slopes differently, with negative forecasts resulting in increased reaction time slopes as a function of risk. These findings suggest that forecasted positive or negative economic change can bias people's mental model of the economy and reduce or stimulate risk taking. Possible implications for mediafulfilling prophecies in the domain of the economy are considered.

Original languageEnglish
Article numbere0174353
JournalPLoS ONE
Volume12
Issue number3
DOIs
Publication statusPublished - 1 Mar 2017
Externally publishedYes

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