Personal Optimism and Aggregate Pessimism

Project under the Guidance of Theis Jensen and Paul Fontanier (Yale SOM, Finance)

People are overoptimistic about many aspects of life. For example, students underestimate how long it takes to complete homework assignments, entrepreneurs overestimate their business’s survival probability, and engineers at NASA frequently underestimate the cost of building space equipment. But people are overpessimistic about other aspects of life. For example, people think that global poverty and violence are increasing when both have in fact been steadily decreasing.

We want to understand when people are overly optimistic and when they are overly pessimistic. Our current hypothesis is that people are optimistic about personal outcomes (like their probability of entrepreneurial success) but pessimistic about aggregate outcomes (like global poverty). To test this hypothesis, we plan to create a database of surveys where people are simultaneously asked about personal and aggregate outcomes. As a concrete example, we have collected data from the Eurobarometer surveys, because they ask people questions like whether they expect their personal job situation to improve, and whether they expect the same for their country’s economic situation. We need your help with expanding the database and turning it into the most comprehensive of its kind. Our goal is to make it publicly available to other researchers, so your contribution could support a wide range of future research.

Depending on interest and ability, there may also be an opportunity to look at related issues in finance, assembling a dataset of expectations for diverse asset classes at different levels of aggregation.