Bob McCarty Writes

Barack Obama

Especially during the first 50 days of his presidency, President Barack Obama has taken a lot of criticism from me and other conservatives about his gloomy outlook on things.  If, however, a new study is on target — and I’m going to hate myself for writing this — being gloomy all the time might mean that he IS trying to help the economy after all.

Wishful bettors, those who make overly optimistic investments, will ultimately harm themselves financially, but they can harm entire markets as well, according to a new study conducted by researchers from The University of Texas at Austin and Cornell University in Ithaca, N.Y.

In the paper, “Contagion of Wishful Thinking in Markets,” the researchers demonstrated how wishful betting can contaminate beliefs throughout markets, as other market participants infer wishful bettors possess more favorable information than they do. As a consequence, investors who initially held accurate beliefs become overly optimistic about stock values. The research will be published in a forthcoming issue of Management Science.

“The findings of our studies contradict what many people assume about markets, that wishful thinkers will be identified and disciplined by more sophisticated investors,” said Nicholas Seybert, an assistant professor of accounting at the McCombs School of Business at The University of Texas at Austin. “Instead, investors fail to recognize the existence of wishful betting even though most of them do it. As a result, wishful thinking can be contagious in financial markets.”

For more on the study, click here.

Be Sociable, Share!

•