Social Norms and the Effect on Forecasting

Perception always plays a large part in how people interact with one another.  The damage or gains those perceptions or the norms developed by society play an interesting part in today’s economy.  Understanding Society writes about the layers that people place on society, and how any stereotype will affect the perception (and potentially the outcome) of the act by another person. 

The concept is simple enough.  For my behavioral economics course, I have been reading Predictably Irrational, by Dan Ariely, which discusses the tricky nature of social norms.  People build these standards that would otherwise be unheard of; however, we have programmed ourselves to believe that the certain activities are true. 

An example would be connecting the bail out of Ireland in 2010 to Angela Merkel’s statements prior to the bail out.  Merkel, the Chancellor of Germany, spoke out to the EU and investors that Ireland (who at the time was struggling economically) was going to fail if Germany and the rest of the EU didn’t bail them out.  As predicted, the Irish economy collapsed.  But was the reason because of the actual instability of the economy or the perception of the economy?

Economists post bail-out believe that the perception of a bail out was enough to push investors over the edge.  Calculations made and data show that Ireland was easily self-sustainable for at least 6 months, but was unable to recover when investors wanted out.  Combined with the words from a powerful figure, the situation is merely a reaction from an action.  Is this good for our society?  In this case, it is easy to say no.

But when we look at the situation from the other side, the recent growth in the US economy could be attributed to big talk from large access points.  Certainly hearing Clint Eastwood tell one that the US is fighting back would help convince Americans that the US economy is on the rise, and numerous reports by CNN and Bloomberg supporting job growth and unemployment decrease can convince investors that it is time to invest in the US once again.  I find that the presentation to the public on these matters is really the crux to the short term growth.

Remember that most economists and America were convinced the housing bubble wasn’t a bubble, and the effects of overinvesting in the economy.  One can be certain that the market itself can certainly be disguised by the perception and layers that society presents at a domestic and global level.

References:

1. Ariely, Dan. “The Costs of Social Norms”. Predictably Irrational. 
2. “Social Subjectives”. Understanding Society. http://understandingsociety.blogspot.com/2012/02/social-subjectivities.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Understandingsociety+%28UnderstandingSociety%29