Martin Hohnisch

Consumer sentiment and countercyclical fiscal policies

We re‐explore the consequences of some popular countercyclical intervention rules in a simple Keynesian‐type macroeconomic model in which the dynamics of consumer sentiment and business cycles are intertwined. We find that fiscal policy does not only have a direct effect on national income via the well‐known Keynesian multiplier process but also an indirect effect by affecting consumer sentiment. The good news is that the indirect effect may amplify the direct effect and therefore increases a policy‐maker’s impact on national income. However, the bad news is that due to the interactions between the business cycle and the evolution of consumer sentiment, the stabilization of national income is an intricate matter.

EMPIRICAL REGULARITIES IN DISTRIBUTIONS OF INDIVIDUAL CONSUMPTION EXPENDITURE

We empirically investigate distributions of individual consumption expenditure for four commodity categories conditional on fixed income levels. The data stems from the Family Expenditure Survey carried out annually in the United Kingdom. We use graphical techniques to test for normality and lognormality of these distributions. While prevailing economic theory does not predict any structure for these distributions, we find that in at least three commodity categories individual consumption expenditure conditional on a fixed income level is lognormally distributed.

Designing for Deliberative Goal-Based Decision Making in Environments with Rare Adverse Events - An Experimental Study

In a laboratory experiment involving a complex multiperiod investment problem beset by rare adverse events, we investigated the effectiveness of a decision process intervention that involved decisions being elicited as a comprehensive system of short-term targets on three preset intermediate goal dimensions. Recent experiments have demonstrated that in such an environment, participants tend to gradually increase their exposure to risk prior to the occurrence of the first adverse event, a tendency that has been attributed to a misleading evaluation of short-term outcomes. The principle of inhibition of goal-related content following goal attainment and a heuristic model of aspiration adaptation independently predict that the formation of a comprehensive intermediate goal system will produce a stable trade-off between safety and short-term profit. We tested this hypothesis by comparing the decisions of participants required to form such targets with those of a control group allocating resources directly. Ou...