Once Bitten, Twice Shy: The Effect of a Banking Crisis on Expectations of Future Crises Print

Neven Valev, Georgia State University

Abstract

Survey data from Bulgaria show that people who had experienced a loss during a banking crisis are significantly more likely to expect a new crisis. This result holds despite 12 years between the earlier crisis and the survey, and the dramatically improved performance of the financial sector and the economy in the meantime. However, we find that earlier experiences affect expectations only for less informed individuals. People with greater ability/motivation to evaluate the economy are unaffected by their prior experiences.