The Psychology Of Economic Doom And Gloom

A recent article in The Economist commented that the magazine’s own way of predicting recessions only involved measuring how many times the word “recession” was used in the articles of news publications. Though The Economist would not claim that this is an accurate method of predicting a recession, it has, nonetheless, been a good indicator of economic downturns over the years. This phenomenon is mostly explained by psychology. Many people trust what they read or see in the news, even if they only see the report in one source. They then act accordingly. Recently, the International Monetary Fund published a report predicting that economic growth is likely to slow down soon. The authors of the report undoubtedly had good intentions, perhaps wishing to warn the leaders of rich countries to prepare for another economic downturn. However, economists are not known for their mastery of human psychology, and unfortunately, the IMF report will probably do more harm than good.

Economic Mob Mentality

The behavior of crowds is perhaps influenced by our roots as bands of hunter-gatherers trying to survive on the African savanna. Our lives depended on the band functioning as a single unit. We had to be able to read the behavior of the group in times of trouble so that the entire group could join forces against a threat. In evolutionary terms, we are largely the same people today – only now, we live in the modern world, where we are all connected via television, radio, and the internet. So when people read pessimistic economic news enough times, they start to act accordingly. Those who see or hear of their actions follow suit (among these people, of course, are journalists, who publish more negative articles). Before long, an entire country – or the whole world – can slide into a recession. Should we censor freedom of speech to prevent this phenomenon? Of course not, but policymakers like the IMF should carefully consider their words, keeping human psychology in mind.

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