The illusion of over-optimism in survey data: the case of manufacturers' selling prices

Over-optimism plays an important role in behavioral economics. This study cautions that optimistic biases found in studies based on qualitative survey data may be an artifact of the method of quantification of tendency survey responses. In the literature, findings of upward biased expectations have been reported for several variables and notably for selling prices in various countries. The model proposed here explains this regularity on the basis of firms making correct probability assessments in the face of the restriction of having to report qualitative answers. Econometric estimates show that the hypothesis of unbiased expectations is upheld in a majority of cases.