Introduction
The concept of confidence in the field of economics relates to the activities and perceptions of both consumers and investors. However, its impact on them differs, and it is necessary to consider consumer and investor confidence separately. Despite the existing differences, the common characteristic of these types of confidence is their influence on the way consumers and investors make decisions. The importance of confidence in economic prospects is conditioned by its impact on predicting the outcomes of activities of consumers and investors.
Main body
One of the principal groups of people whose behavior depends on confidence is consumers. The degree of consumer confidence allows them to track their future spending patterns for the benefit of sellers. According to Fereidouni and Tajaddini, its use corresponds to the essential interests of economic policymakers (218). The researchers believe that the optimism of consumers increases their spending, and this fact contributes to the understanding of the policy companies need to conduct in order to increase their sales (Fereidouni and Tajaddini 219). Hence, the improvements in the consumption of various products are possible in the case of the positive attitude of consumers, which leads to a higher degree of confidence.
The concentration on consumers’ views about available products and services allows researchers not only to increase sales but also to predict the tendency for future changes. In the present-day world, this objective is much easier to achieve due to the development of social media (Shayaa et al. 32). The willingness of people to share their opinion on the use of specific goods on the Internet promotes an increase in consumer confidence as well. Therefore, social media facilitates the work of economic policymakers and allows them to influence the consumers’ confidence and, as a consequence, their buying patterns for further benefit.
The second target group is investors, whose economic activities are also influenced by their degree of confidence. Their trading indicators are directly connected to the concept of investor confidence. Hoffmann and Post claim that confident investors trade more than the less confident ones as they rely more on their intuitive judgment (66). For confident investors, intuitive beliefs about the possible outcome of their activities are vital. Hence, the more optimistic in terms of expected returns the investor is, the more he trades. However, this tendency results in higher turnover, which has a negative impact on the investor’s performance.
The ground for the activity of investors is their expectations in terms of trading. The researchers believe that confident investors tend to rely more on their prior experience, which can be misleading in the case of changing circumstances (Hoffman and Post 69). It allows concluding that there is a clear link between the trading patterns of investors and their confidence in the outcome. This finding contributes to the necessity to consider such a concept as investor confidence when making predictions about their future behavior.
Conclusion
The degree of confidence of both consumers and investors has a significant impact on their economic activities. It leads to an increase in their participation and provides data for further analysis, which allows researchers to predict possible changes in the market. However, there is a significant difference in the application of this concept to these economic groups. It relates to the degree of risk, which is higher for confident investors rather than confident consumers, whose buying patterns depend only on their perception. In contrast, investors need to consider other factors, such as market conditions and experience.
References
Fereidouni, Hassan Gholipour, and Reza Tajaddini. “Housing Wealth, Financial Wealth and Consumption Expenditure: The Role of Consumer Confidence.” The Journal of Real Estate Finance and Economics, vol. 54 no. 2, 2017, pp. 216-236.
Hoffmann, Arvid OI, and Thomas Post. “How Does Investor Confidence Lead to Trading? Linking Investor Return Experiences, Confidence, and Investment Beliefs.” Journal of Behavioral and Experimental Finance, vol. 12, 2016, pp. 65-78.
Shayaa, Shahid, et al. “Social Media Sentiment Analysis of Consumer Purchasing Behavior vs. Consumer Confidence Index.” Proceedings of the International Conference on Big Data and Internet of Thing, Association for Computing Machinery, 2017.