People tend to be more optimistic about the long term than the short term, a habit that distorts our investment decisions.
A new paper by Peter Kelly at the University of Notre Dame and colleagues has found that professional economic forecasters are systematically more optimistic about economic growth over the following 12 months than the following three. This, they show, is true in both the UK and eurozone.
The point here is not simply that they are prone to the optimism bias – looking too much on the bright side. It’s that this optimism bias is greater at longer horizons than short ones.