Investing is essentially about numbers and the ability to analyze those numbers. Whether analyzing company financial statements or economic developments, the job of investors is to look at the numbers, make sense of them, and then allocate capital accordingly.
But the challenge is in the ‘make meaning of it’ part. Humans are not built to be good at statistical analysis of numbers and data. Instead, we have evolved to process information in the form of stories, or to use the technical term stories. This is why Robert Shiller’s Narrative economics 2017 speech was so incredibly powerful. It showed for the first time how stories influence investors and markets.
Naturally, we have since witnessed the emergence of large language models that can analyze investment stories in detail. But the bottom line remains the same. Investors, most of whom are human, value stories more than actual data. That is (among many) the fascinating insight of a laboratory survey among investors by researchers from the Ifo Institute.
The research consisted of a survey sent to 1,864 investment experts and 9,123 U.S. retail investors. The survey asked investors in late 2023, as recession fears about the U.S. economy were rising, whether they would be willing to pay for the Fed’s 2024 recession forecast, compared to the consensus narrative about the 2024 economy.
The chart below shows the average willingness to pay for the probability forecast of a Fed recession, or the consensus view of how the economy will develop. In the latter case, the results are split between people who previously saw the Fed’s recession forecast and those who did not.
Willingness to pay for information about the US economy
Source: Blesse et al. (2025)
What I find most important about the above results is that people value stories more than the actual recession forecast. Even if they already have the recession forecast, people are willing to pay almost the same amount for an explanation of how the economy will evolve.
But here are the things that made me smile. The researchers also tested a subset of participants to determine whether they would be willing to pay for the consensus story, an optimistic story, and a pessimistic story. Most people would pay for the consensus story rather than the optimistic or pessimistic story. Still, the pessimists among those who chose a specific narrative could demand a significantly higher price.
Willingness to pay for consensus, optimistic and pessimistic stories
Source: Blesse et al. (2025)
The best part for me in the study was when the researchers analyzed who pays for what type of story:
People who are overly confident in their predictions are more likely to pay for pessimistic stories.
People who suffer from motivated reasoning (that is, they try to support their pre-existing beliefs) are much more likely to look for optimistic or pessimistic stories, but not consensus stories.
The people who are most concerned about the accuracy of their predictions and do not engage in motivated reasoning are the most likely to seek the consensus story rather than a biased story.
#pessimists #money