Lux, Thomas, 1962- (2007) Collective opinion formation in a business climate survey. Working Paper. Warwick Business School, Financial Econometrics Research Centre, Coventry.

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Abstract

A large body of literature has proposed models inspired by particle physics as formalizations of collective processes in the economic and social spheres of human societies [1, 2, 3, 4]. However, attempts at empirical validation of such models have been very sparse so far. This paper develops a broadly applicable methodology for estimating the parameters of microscopic models of social interactions. Its application to a popular business climate survey indicates that the collective behaviour of the survey respondents is well explained by a simple ‘particle’ model of social interactions. This result also lends support to the view that the large fluctuations of investors’ and consumers’ confidence are mostly due to ‘animal spirits’ rather than new information.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory Q Science > QC Physics
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Stochastic analysis, Statistical physics, Physics -- Research, Economics, Mathematical
Series Name:	Working papers (Warwick Business School. Financial Econometrics Research Centre)
Publisher:	Warwick Business School, Financial Econometrics Research Centre
Place of Publication:	Coventry
Date:	16 October 2007
Number:	No.07-
Number of Pages:	15
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	[1] Callen, E. and D. Shapero, A Theory of Social Imitation, Physics Today, July 1974, 23 - 28. [2] Weidlich, W. and G. Haag, Concepts and Methods of a Quantitative Sociology, Berlin, Springer 1983. [3] Kirman, A., Ants, Rationality, and Recruitment, Quarterly Journal of Economics CVIII, 1993, 137-156. [4] Lux, T. and M. Marchesi, Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market, Nature 397, 1999, 498 - 500, Lux, T., Herd Behaviour, Bubbles and Crashes, Economic Journal 105, 1995, 881-896. [5] Risken, H., The Fokker-Planck Equation: Methods of Solutions and Applications, Berlin, Springer 1989. [6] Frank, T., Nonlinear Fokker-Planck Equations, Berlin, Springer 2005. [7] Thomas, J., Numerical Partial Differential Equations, Berlin, Springer 1995. [8] Poulsen, R., Approximate Maximum Likelihood Estimation of Discretely Observed Diffusion Processes, Manuscript, University of Aarhus, 1999. [9] ZEW stands for the Center for European Economics Research (German acronym: ZEW) at the University of Mannheim, information on the compilation of the index can be found at http://www.zew.de/de/publikationen/Konjunkturerwartungen/Konjunkturerwartungen.php3 [10] Gelper, S., A. Lemmens and C. Croux, Consumer Sentiment and Consumer Spending: Decomposing the Granger Causal Relationship in the Time Domain, Applied Economics, 39, 2007, 1-11. [11] Taylor, K and R. McNabb, Business Cycles and the Role of Confidence: Evidence for Europe, Oxford Bulletin of Economics and Statistics, 69, 2007, 185-208. [12] This notion dates back at least as far as Keynes, J.M., The General Theory of Employment, Interest and Money, London, MacMillan 1936. [13] Lux, T. and X. Wang, University of Kiel, work in progress.
URI:	http://wrap.warwick.ac.uk/id/eprint/1733

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