@workingpaper {703586, title = {How People Use Statistics}, year = {Working Paper}, author = {Pedro Bordalo and Conlon, John and Nicola Gennaioli and Spencer Kwon and Andrei Shleifer} } @workingpaper {655218, title = {Older People are Less Pessimistic About the Health Risks of Covid-19}, year = {Working Paper}, author = {Pedro Bordalo and Katherine Coffman and Nicola Gennaioli and Andrei Shleifer} } @workingpaper {645297, title = {Real Credit Cycles}, year = {Working Paper}, abstract = {Recent empirical work has revived the Minsky hypothesis of boom-bust credit cycles driven by uctuations in investor optimism. To quantitatively assess this hypothesis, we incorporate diagnostic expectations into an otherwise standard business cycle model with heterogeneous firms and risky debt. Diagnostic expectations are a psychologically founded, forward-looking model of belief formation that captures over-reaction to news. We calibrate the diagnosticity parameter using microdata on the forecast errors of managers of listed firms in the US. The model generates countercyclical credit spreads and default rates, while the rational expectations version generates the opposite pattern. Diagnostic expectations also offer a good fit of three patterns that have been empirically documented: systematic reversals of credit spreads, systematic reversals of aggregate investment, and predictability of future bond returns. Crucially, diagnostic expectations also generate a strong fragility or sensitivity to small bad news after steady expansions. The rational expectations version of the model can account for the rst pattern but not the others. Diagnostic expectations offer a parsimonious account of major credit cycles facts, underscoring the promise of realistic expectation formation for applied business cycle modeling.}, author = {Pedro Bordalo and Nicola Gennaioli and Andrei Shleifer and Stephen J. Terry} }