Psychological Data in Business Cycle Research

Abstract

At the theoretical level concessions are made to the view that subjective or psychological variables as well as the conventional objective variables may play a role in determining the course of short-run economic fluctuations. Haberler, in his well-known treatise on varieties of business cycle theories, devotes some few pages to Psychological Theories.1 He argues that psychological aspects, serving as adjuncts, are incorporated in the theories of many writers. These aspects are expectations, optimismpessimism, entrepreneurial or consumer reactions, and irrational influences. In many cases, analysis of business cycles is pushed to a certain stage, as far as analysis of purely economic variables permits. Then psychological aspects are introduced, and the economist catalogues the various possible outcomes of further events, each depending on unknown and perhaps mysterious psychological factors. Two basic problems are involved in the theory of business cycles. (1) How do psychological variables influence economic decisions? (2) What is the process by which the psychological variables originate and are determined? Standard business cycle theory has certainly taken account of the first question and has, in some measure, attempted to answer it. The second and more difficult question has largely been ignored. In empirical business cycle research the neglect of psychological variables is much more pronounced. The tendency has been to deal nearly exclusively with what are believed to be objectively measurable variables and recognize only extreme psychological situations such as panics and