Perception Versus Reality

Perception versus Reality

Shelly Matushevski mlm112

Justin Pownell jsp15

Joseph Manno jla55

Department of Economics The University of Akron Fall 2009

Individuals have many different perceptions about how the economy is doing; however, these sometimes do not match up with reality. This essay will compare the perceptions of several groups of individuals to what is actually happening in the economy. Overall, this essay will find that ambiguity is present in the analyses.

All individuals have their own perception of how the economy is doing. Perception can be influenced by one’s background, environment, and awareness of surroundings, as well as many other things. By definition perception is a result of an observation, but reality, on the other hand, is defined as the state of being actual or real. This paper will look at different groups of individuals and compare their perceptions to reality. The specific groups we studied were those that had taken a college economics course compared to those that had not taken one, and those that were right-leaning individuals compared to those that were left-leaning and those in the middle. We also made a few general observations comparing their views on the economy and capitalism.

The data for this survey was collected by three students from the Computer Skills for Economics class, each randomly surveying thirty people. This has been combined with the results from the sixteen students in the class. This new combined data set is the basis for the observations in this paper. Overall, the number of total observations used for each of the following graphs is 103.

Table 1

The first group of individuals that this paper analyzes is those that have taken an economics course compared to those that have not. The perception for this case is that those who have taken an economics class would have more knowledge about the economy than those who have not. Through the analysis of Tables 1-4, this perception is the reality.

How is the U.S. economy doing?
Have you taken an economics course at the college level? / Growing at a fast pace / Slowly Growing / No Growth / Contracting / In a Recession / Depression / Total
Yes / 0% / 35.42% / 16.67% / 12.5%% / 31.25% / 4.17% / 46.60%
No / 1.82% / 40% / 14.55% / 3.64% / 36.36% / 3.64% / 53.40%
Total / .97% / 37.86% / 15.53% / 7.77% / 33.98% / 3.88% / 100%

In Table 1, the perception that individuals that have taken a college economics course would be more knowledgeable is proven. For those that have taken an economics course 43.75 percent believe that the economy is either contracting or in a recession, which is the reality. Conversely, only 40 percent of those that have not taken an economics course believe the economy is contracting or in a recession. Although there is only a small difference in percent, it stills proves the perception to be reality.

Have you ever taken an economics course at the college level? / What was the last reported unemployment rate? / What is the current inflation rate in the US?
Yes / 12.1% / 4.7%
No / 13.4% / 10.2%

Table 2

Table 2 shows the mean data for the unemployment rate and the inflation rate. The current unemployment rate is reported at 9.8 percent by the BLS[1]. Using this as the basis for comparison, again, the perception is proven to be the reality. Those that have taken a college economics course were closer to the actual value. The same goes for the inflation rate. The current inflationrate is -1.3 percent[2], also reported by the BLS. Although neither of the answers is very accurate, 4.7 percent is

muchcloser to the actual value.

How does current unemployment compare to that of last year?
Have you taken an economics course at the college level? / UN is higher / UN about the same / UN is Lower / Total
Yes / 83.33% / 8.33% / 8.33% / 46.6%
No / 74.55% / 9.09% / 16.36% / 53.4%
Total / 78.64% / 8.74% / 12.62% / 100%

Table 3

Table 3 continues to show our perception is actually reality. The unemployment rate is higher that last year at this time. For those that have taken an economics course 83.33 percent knew that the unemployment rate was higher and only 74.55 percent of those that have not taken an economics course knew this. While these percents are similar, there is more of a difference when looking at those that responded that the unemployment rate is lower than last year. For those that have not taken an economics class, 16.36 percent thought it was lower while only 8.33 percent of those that have taken an economics course thought it was lower. The percents were almost the same for both groups for those that thought the unemployment rate was about the same.

Table 4

How does current inflation compare to last year?
Have you taken an economics course at the college level? / Inflation is higher / Inflation is about the same / Inflation is lower / Total
Yes / 31.25% / 29.17% / 39.58% / 46.60%
No / 50.91% / 30.91% / 18.18% / 53.40%
Total / 41.75% / 30.10% / 28.16% / 100%

Table 4 compares the different thoughts on how the inflation rate has changed from last year at this time, to the present. The inflation rate last year for the month of September was reported as 4.9 percent. Again, the current inflation rate is -1.3 percent. This is certainly a very large decrease from the year before. Once again, our perception that students with a college economics course have more knowledge is confirmed. For the individuals that answered correctly that inflation is lower, 39.58 percent have had an economics course with only 18.18 percent of those have not had an economics course. There is also a higher percent for both of the other answer choices for those that have not had an economics course.

Overall, we can conclude from Tables 1-4 that individuals with at least one economic course at the college level have more knowledge about the current state of the economy than those individuals without an economic course. The percentages in the correct answer have consistently been higher throughout our survey for those with an economics course. The logical perception in this comparison is that individuals that have taken an economics course would be more aware and have more knowledge about the current state of the economy. This perception has been confirmed as a reality through the findings and analysis of the preceding four tables.The next groups of individuals that are compared are those that claim to be either left-leaning or right-leaning.

For the comparison of left-leaning and right-leaning individuals, the comparison will be of both what each group thinks of the economy and also of their knowledge.

Are you more left-leaning or right-leaning? / What was the last reported unemployment rate? / What is the current inflation rate in the US?
Left-leaning / 12.3% / 4.6%
In the middle / 14.1% / 8.5%
Right-Leaning / 11.4% / 7.8%

Table 5

Table 5 compares the individual’s political affiliation with their respective mean unemployment and inflation rates. As stated before, the current unemployment rate is 9.8 percent and the current inflation rate is -1.3 percent. By looking at Table 5, left-leaning individuals more accurately estimated the inflation rate, while right-leaning individuals were more correct on unemployment. The perception in this case for the left-leaning individuals is that the unemployment is worse off than it really is, while inflation is close to the 2.5 to 3.5 percent[3] normal that a growing economy would expect. Conversely, right-leaning individuals tended to believe that the unemployment rate was a little lower than it really was, while inflation was extremely high.

How does current unemployment compare to last year?
When it comes to the economy, are you more right or left leaning? / Higher / About the Same / Lower / Total
Left Leaning / 87.88% / 6.06% / 6.06% / 32.04%
In the Middle / 67.86% / 14.29% / 17.86% / 27.18%
Right Leaning / 78.57% / 7.14% / 14.29% / 40.78%
Total / 78.64% / 8.74% / 12.62% / 100%

Table 6

Table 6 shows the comparison of again left-leaning and right-leaning individuals, but now paired with how current unemployment compares to that of last year. Here, the left-leaning individuals were more correct in their perception of the economy than the right-leaning individuals. Approximately 87 percent on left-leaning individuals were correct by stating that the unemployment rate is higher now than it was last year compared to only about 78 percent of right-leaning individuals. Furthermore, a significantly higher amount of right-leaning individuals were wrong by stating that unemployment is lower now than it was before compared to only about 78 percent of right-leaning individuals. Furthermore, a significantly higher amount of right-leaning individuals were wrong by stating that unemployment is lower now than it was before compared to only about 78 percent of right-leaning individuals.

Table 7 below shows the same comparison of left-leaning, right-leaning individuals as above, however, it is now paired with how the individuals believe the economy is doing. This question is again used to analyze the differences between perception and reality of left-leaning and right-leaning

Table 7

How do you think the economy is doing?
When it comes to the Economy,
Are you more right or left leaning? / Growing at a high pace / Slowly growing / No Growth / Contracting / In a Recession / In a Depression / Total
Left Leaning / 0% / 51.52% / 9.09% / 9.09% / 24.24% / 6.06% / 32.04%
In the Middle / 0% / 35.71% / 7.14% / 3.57% / 50% / 3.57% / 27.18%
Right Leaning / 2.38% / 28.57% / 26.19% / 9.52% / 30.95% / 2.38% / 40.78%
Total / .97% / 37.86% / 15.53% / 7.77% / 33.98% / 3.88% / 100%

individuals. The reality in this situation is that the economy is in a recession[4]. According to the graphs above, left-leaning individuals have been closer to the reality than right-leaning individuals on all but one. However, this graph shows that the right-leaning individuals are more correct in their perception of the economy. In this case, over 50 percent of left-leaning individuals felt that the economy was slowly growing, which is not the case as of now. GDP is still falling, and with the numbers that are now known, the economy is still in a recession. Moreover, compared to the 24 percent of left-leaning individuals that answered the correct response of a recession, 30 percent of right-leaning individuals answered correctly. This graph thus concludes the analysis of left-leaning and right leaning individuals. Overall, this essay has shown that there is no correlation between the perceptions and realities of left-leaning and right-leaning individuals. It seems, from the data above, that on some issues left-leaning individuals’ perception will be closer to the reality and on other issues, right-leaning individual’s perception will be close to the reality.

The next comparison this essay will talk about is an individual’s feelings about capitalism compared to how they believe the economy is doing. The perception in this case would be that if an individual believes capitalism has failed, then they will feel that the economy is not doing well. Why would someone respond that the basis of the U.S. economy has failed, while they also respond that the economy is doing well? However, this did not seem to be the case. As witnessed below in Table 8, 50 percent of individuals who responded that they strongly agree that capitalism has failed believe the economy is slowly growing. Furthermore, 55 percent of individuals who responded that they agreed with the above statement felt that the economy was growing. This tends to be a contradiction between the reality of what individuals thought about capitalism and how the economy was doing, and the reality of what one would have thought these individuals would have answered. Moreover, this contradiction is again witnessed by individuals who answered that they strongly disagree with that statement. Around 33 percent of those who strongly disagree with that statement felt the economy was in a recession, coupled with the 25 percent of individuals who felt the economy was in a recession, but disagreed that capitalism has failed. In conclusion, in these individuals, there tended to be a contradiction between the perception and reality of their statements.

Table 8

How is the U.S. economy doing?
Comment on this statement: Capitalism and free markets have failed / Growing at a fast pace / Slowly Growing / No Growth / Contracting / In a Recession / In a Depression / Total
Strongly Agree / 0% / 50% / 50% / 0% / 0% / 0% / 1.94%
Agree / 0% / 55% / 0% / 5% / 35% / 5% / 19.42%
Neither agree nor disagree / 0% / 24.24% / 21.21% / 6.06% / 42.42% / 6.06% / 32.04%
Disagree / 0% / 48.15% / 7.41% / 14.81% / 25.93% / 3.7% / 26.21%
Strongly Disagree / 4.76% / 28.57% / 28.57% / 4.76% / 33.33% / 0% / 20.39%
Total / .97% / 37.86% / 15.53% / 7.77% / 33.98% / 3.88 / 100%
How do you think the economy is doing now? / Will you be spending more or less in the comings than you did at this time last year (including Christmas spending)?
More / Less / About the Same / Total
Growing at a high pace / 0% / 0% / 1.15% / 1.15%
Slowly Growing / 3.45% / 18.39% / 12.64% / 34.48%
No growth / 3.45% / 4.60% / 8.05% / 16.09%
Contracting / 1.15% / 1.15% / 3.45% / 5.75%
In a recession / 2.30% / 22.99% / 12.64% / 37.93%
In a depression / 0 / 1.15% / 3.45% / 4.60%
Total / 10.34% / 48.28% / 41.38% / 100%

Table 9

Table 9 compares an individual’s spending to how they think the economy is doing. The perception for this table is that those who think the economy is in a recession, depression, or contracting should respond that they will be spending less at Christmas than last year. After looking at the table it is apparent that this is the case. For the majority of the individuals, those that responded with any of the three aforementioned choices also responded that they would spend less or about the same as last year. For the individuals that stated that they think the economy is slowly growing, the majority of them, 31.03 percent out of 34.48 percent, responded that they would spend either less or about the same as last year. Only 3.45 percent responded that they would spend more, which seems to be opposite. It would be expected that those that think the economy is growing would spend more at Christmas this year as compared to last year.

In conclusion, all individuals have their own perception of how the economy is doing. As this essay has shown, their perception can be influenced by their knowledge about economics, which was analyzed by comparing individuals who have and have not taken an economics course at the college level. Their perception can also be influenced by their political affiliation and their thoughts about capitalism. Furthermore, individuals perceptions about how the economy is doing can also affect their spending habits. This essay has shown that some common perceptions are not the reality for all individuals. This was witnessed in the case of individuals who have taken an economics course and individuals who have not taken an economics course. Overall, ambiguity is present in different groups of individuals perceptions versus reality.

Works Cited

Altig, David. What is the Right Inflation Rate? 15 September 2003. 25 October 2009 <

Employment Situation Summary. 2 October 2009. 25 October 2009 <http://www.bls.gov/news.release/empsit.nr0.htm>.

Gross Domestic Product. 30 September 2009 . 25 October 2009 <http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp2q09_3rd.pdf>.

[1] Bureau of Labor Statistics

[2] Not adjusted 12 month percent change

[3] As reported by the Federal Reserve Bank of Cleveland. See reference page.

[4] According to quarterly GDP’s found by the Bureau of Economic Analysis