Arbeitspapier
Exponential Growth Bias in the Prediction of COVID-19 Spread and Economic Expectation
Exponential growth bias (EGB) is the pervasive tendency of people to perceive a growth process as linear when, in fact, it is exponential. In this paper, we document that people exhibit EGB when asked to predict the number of COVID-19 positive cases in the future. The bias is positively correlated with optimistic expectations about the future macroeconomic conditions and personal economic circumstances, and investment in a risky asset. We design four interventions to correct EGB and evaluate them through a randomized experiment. In the first treatment (Step), participants make predictions in several short steps; in the second and third treatments (Feedback-N and Feedback-G) participants are given feedback about their prediction errors either in the form of numbers or graphs; and in the fourth treatment (Forecast), participants are offered a forecast range of the future number of cases, based on a statistical model. Our results show that a) Step helps mitigate EGB relative to Baseline, b) Feedback-N, Feedback-G, and Forecast significantly reduce bias relative to both Baseline and Step, c) the interventions decrease risky investment and help moderate future economic expectations through the reduction in EGB. The results suggest that nudges, such as behaviorally informed communication strategies, which correct EGB can also help rationalize economic expectations.
- Language
-
Englisch
- Bibliographic citation
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Series: IZA Discussion Papers ; No. 13664
- Classification
-
Wirtschaft
Health Behavior
Health: Government Policy; Regulation; Public Health
Design of Experiments: Laboratory, Individual
Expectations; Speculations
- Subject
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COVID-19
economic expectation
exponential growth bias
- Event
-
Geistige Schöpfung
- (who)
-
Banerjee, Ritwik
Majumdar, Priyama
- Event
-
Veröffentlichung
- (who)
-
Institute of Labor Economics (IZA)
- (where)
-
Bonn
- (when)
-
2020
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Banerjee, Ritwik
- Majumdar, Priyama
- Institute of Labor Economics (IZA)
Time of origin
- 2020
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