Optimism, Pessimism, and Reality

Last winter I gave a forecast to the agents of a commercial real estate company.  The forecast was necessarily negative, but it was well received by the agents.  The company’s president was another matter.  He was downright angry.  I wasn’t optimistic enough.  A very similar vignette played itself out when I gave a forecast to the customers and potential customers of a regional bank.  After I finished, the bank’s president did his very best to argue that my forecast was wrong.

This happens all the time, and it sometimes costs my university money.  I’m pretty sure I won’t be talking to that real estate company or that bank again, even though subsequent events have confirmed my forecast.  I’m also regularly criticized by economic development people, city managers, tourism professionals, and real estate sales people, for either not being optimistic enough or for pointing out issues such as high marginal tax rates.

This confuses me.

It seems to me that when you ask an economist to speak, you would want the truth as they see it.  You are presumably looking for information to help make better decisions, and I don’t see how sugar coating things helps decision making at all.  I’m guessing that many people who made decisions last summer based on talk of green shoots and claims that a real estate recovery was imminent have a few regrets today, and a smaller net worth.  Optimism didn’t help these people.

That’s not to say I’m always right.  I’ve been wrong, and I’ll be wrong again.  That’s the nature of forecasting.  That’s the reason I always recommend that people listen to many economists, and then make their own decisions.  When doing that, it makes a lot of sense to pay particular attention to those who’s opinions might conflict with your interests or priors.

So, I have a few suggestions:  If you want a motivational speaker, get somebody with an inspiring life story.  If you want a sales person, get a sales person.  If you want to try and understand economic activity, get an economist.

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