Abstract

Macroeconomic disasters are low-probability events with severe economic and financial consequences. Using a survey experiment with both finance experts and laypersons, we conduct the first incentivized elicitation of beliefs about macroeconomic disaster risk and subsequent investment in risky financial assets. Our findings indicate that, consistent with the systematic overweighting of recent disasters, both laypersons and finance experts overestimate disaster risk, leading to underinvestment in our portfolio task. However, we find that communicating historical information about the frequency of macroeconomic disasters helps to correct misperceptions of this frequency and stimulate investment. Although participants adjust their beliefs in the expected direction, they fail to react to the precision of information while, in the case of laypersons, reacting to the salience of information. Our findings offer practical guidelines for effective communication by financial authorities and show that they depend on the financial expertise of the target population.

Practical information