What Surveys Don’t Know About You

The Wall Street Journal:

Barry Ritholtz at The Big Picture riffs today on how meaningless he finds the National Retail Federation surveys of how much consumers expect to spend at holiday time.

His table of year-over-year changes in expected vs. actual spending is an eye-opener.

The same phenomenon has been documented by social scientists for decades: People are almost freakishly inept at forecasting their future behavior.

That’s largely because you predict your future behavior by assessing how you feel now about a decision you won’t be making for some time to come.

Your assessment of how you think you will feel in the future depends very largely on how you feel in the present. If you are currently in an aroused state of fear or worry, you will naturally project that into the future—underestimating both your own emotional resilience and the likelihood that the economy will rebound. Conversely, if you are feeling positive, you project that mood forward, intuitively assuming that you will feel good in the future too—essentially ignoring the risk that your emotions and the economy will take a dive.

Behavioral economist George Loewenstein has christened this “the hot/cold empathy gap,” meaning that when you are in a hot emotional state it is difficult to envision how you will make decisions in a cooler frame of mind—and vice versa. Psychologist Daniel Gilbert has referred to our present guesses of our future feelings as “premotions,” or rough reactions to events that haven’t occurred yet.

Read the whole story: The Wall Street Journal