Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Optimistic Beliefs Offer Escape From Recession

Media Release
APRIL 6, 2009

Creating Optimistic Beliefs Could Offer Escape From Recession

Global economies bogged down by widespread pessimism over the current financial crisis should use positive thinking to ‘talk themselves out’ of their negative mindset, new research from The University of Auckland Business School says.

Associate Professor Ananish Chaudhuri of the Department of Economics says his current research – featured in the latest edition of the British Economic Journal - shows economic recessions are often caused by widespread pessimism among businesses and individuals, rather than as a result of inherent systemic problems.

This means that it is possible to create appropriately optimistic beliefs as a key way of tackling such crises, he says. However, success depends on making sure everyone is on the same page and convinced about working collaboratively.

“In combating crises like the current situation, we really need to think of innovative actions or social processes that generate optimistic beliefs,” Assoc Professor Chaudhuri says.

“Getting a message to co-ordinate is not enough. Each person must be convinced that others have received the same message and interpreted it in similar ways. A shared comprehension of the message is absolutely crucial to solving such co-ordination problems.”

Together with researchers from New York University and Rutgers, the State University of New Jersey in the United States, Professor Chaudhuri used economic decision-making experiments to simulate an extreme example of a real-life problem revolving around co-ordinating people’s actions.

He says deep recessions cause economies to get caught in an ‘under-employment trap’ where no firm will expand production unless it is assured that others will do so as well.

This is despite not doing so leading to an outcome that is worse for everyone concerned.

“Such loss of faith, which often tends to be self-fulfilling, can have devastating financial consequences. The question then arises as to how this faith can be restored,” he says.

“For economic leaders to make a difference, the advice they give must be public and common knowledge in the sense that everyone must get the same advice and must also know that everyone else is getting the same advice.

“So if a political leader makes a public announcement that is heard by everyone, and everyone knows that everyone else has heard it, then a necessary condition has been met for successful co-ordination.

“Creating appropriately optimistic beliefs is a key way of tackling such crises.”

END

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 


Energy Resources Aotearoa: Doubling Of Coal Use Shows Need For Local Natural Gas

New figures showing a near doubling of coal-fired electricity generation highlight New Zealand’s energy shortage and the need for natural gas as a lower carbon alternative, according to Energy Resources Aotearoa... More>>


E Tu: ‘Sense Of Mourning’ As Norske Skog Mill Set To Close

Workers at Norske Skog’s Tasman Mill now know they’ll be losing their jobs in little over a month’s time.
On Wednesday afternoon, workers were told the mill will be stopping production from the end of June... More>>




Stats NZ: Card Spending Sees Strong Growth In May

Seasonally adjusted card spending rose by $189 million (2.3 percent) between April 2021 and May 2021, Stats NZ said today.
Spending rose across all industries for the first time since New Zealand moved to level 1 in June 2020... More>>


Catalist: NZ’s New SME Stock Exchange, Gets Licence To Go Public

New Zealand has a new stock exchange – designed specifically for small and medium-sized businesses (SMEs) to raise up to $20 million a year from the public.
Called Catalist, the exchange has already been successfully working the private investment sector.... More>>

E-Commerce: Over 40% Of Those Engaged In The Bitcoin Community Are Millennials

Bitcoin has emerged to be a popular topic among millennials with digital currency increasingly being viewed as a potential source of creating wealth through investments. The interest in bitcoin by millennials signals the role this age group plays in the possible realization of the digital currency’s mass adoption... More>>



Stats NZ: New Zealand Is Getting Drier

While there is natural variation in precipitation due to seasons and cycles, New Zealand appears to be getting drier, Stats NZ said today... More>>