Publications / SAND Report

On the need and use of models to explore the role of economic confidence:a survey

Sprigg, James A.

Empirical studies suggest that consumption is more sensitive to current income than suggested under the permanent income hypothesis, which raises questions regarding expectations for future income, risk aversion, and the role of economic confidence measures. This report surveys a body of fundamental economic literature as well as burgeoning computational modeling methods to support efforts to better anticipate cascading economic responses to terrorist threats and attacks. This is a three part survey to support the incorporation of models of economic confidence into agent-based microeconomic simulations. We first review broad underlying economic principles related to this topic. We then review the economic principle of confidence and related empirical studies. Finally, we provide a brief survey of efforts and publications related to agent-based economic simulation.