Why pessimists make more money

No, I am not talking about making money as investors. There, the track record of chronically bearish investors is abysmal. But investment gurus who sell bearish newsletters make more money selling their newsletters and books than people who sell useful information.

Investing is fundamentally about numbers and the ability to analyse these numbers. Whether we are talking about analysing corporate financial statements or economic developments, the job of investors is to look at the numbers, make sense of them and then allocate capital accordingly.

But the challenge is with the ‘make sense of them’ bit. Humans aren’t built to be good at the statistical analysis of numbers and data. Instead, we have evolved to digest information in the form of stories, or to use the technical term, narratives. This is why Robert Shiller’s Narrative Economics speech from 2017 was so incredibly powerful. It showed for the first time how stories influence investors and markets.

Of course, since then, we have witnessed the advent of large language models that can analyse investment narratives in detail. But the bottom line remains the same. Investors, most of them being human, value narratives more than the actual data. That is the fascinating insight (among many) of a lab study among investors by researchers from the Ifo Institute.

The study consisted of a survey sent to 1,864 investment experts and 9,123 US retail investors. In the survey, investors were asked at the end of 2023, when recession fears about the US economy were rising, if they would be willing to pay to receive the recession probability forecast of the Fed for 2024, compared to the consensus narrative about the economy in 2024.

The chart below shows the average willingness to pay for the Fed recession probability forecast, or the consensus view of how the economy will develop. In the latter case, the results are split between people who previously saw the Fed’s recession probability forecast and those who did not.

Willingness to pay for information about the US economy

Source: Blesse et al. (2025)

What I find most important about the results above is that people value narratives more than the actual recession forecast. Even if they already got the recession forecast, people are willing to pay almost the same amount for an explanation of how the economy will evolve.

But here is the stuff that made me smile. The researchers also tested a subgroup of the participants to determine whether they would be willing to pay for the consensus narrative, an optimistic narrative and a pessimistic narrative. Most people would pay for the consensus narrative rather than the optimistic or the pessimistic narrative. Still, among those who chose a specific narrative, the pessimists could ask for a significantly higher price.

Willingness to pay for consensus, optimistic and pessimistic narratives

Source: Blesse et al. (2025)

The best bit for me in the study was when the researchers analysed who pays for what kind of narrative:

• People who are overly confident in their predictions are more likely to pay for pessimistic narratives.

• People who are suffering from motivated reasoning (i.e. they seek to support their pre-existing beliefs) are far more likely to seek out optimistic or pessimistic narratives, but not consensus narratives.

• The people who are most concerned about the accuracy of their predictions and do not engage in motivated reasoning are the most likely to seek out the consensus narrative rather than a biased one.