Paris Saclay Seminar

Communication on macroeconomic disaster risk: an experiment with finance professionals

Pauline Gandré (U. Nanterre)

Nov 23, 2023, 12:15

CEPS - University of Val d'Essonne



Since Barro (2006), the macro-finance literature has shown that accounting for rare macroeconomic disasters helps explain various long-lasting empirical puzzles in financial asset markets through the critical role of disaster risk perceptions. However, the latter have not been documented at the microeconomic level. To fill this gap and investigate whether communication on macroeconomic disaster risk can affect individual perceptions and financial investment decisions, we ran an online experiment on 345 French finance and macroeconomics professionals. We randomly assigned participants to three distinct informational treatments about the past frequency of macroeconomic disasters in a given historical sample. We asked participants to estimate this frequency prior and posterior to the treatment and to allocate a sum of money between a risk-free asset and a risky asset whose returns depend on the possibility of a macroeconomic disaster. Our preliminary results reveal that disaster perceptions are heterogeneous and that, on average, participants significantly overestimate the past frequency of macroeconomic disasters before information provision. At the intensive margin, participants decrease their frequency estimate and uncertainty and increase investment in the risky asset following the treatments. More than half of the participants behave as Bayesian updaters. At the extensive margin, the high-precision treatment increases the probability of updating the prior relative to the two other treatments.


CEPS, Université of Evry Val d'Essonne
Boulevard François Mitterrand, 91025, Evry