Aggregate Sentiment and Investment: An Experimental Study

We theoretically and experimentally study an investment game with fundamental state uncertainty and input complementarities—i.e., a global game environment. Our particular focus is on how a sentiment index, closely modeled after consumer confidence surveys, aggregates private information and influences investment. We find that a sentiment index produces very similar results to a highly informative public signal regarding the underyling state. Both forms of public signals—one exogenous and highly precise, the other endogenous and noisier—increase investment in a range of states where public information can induce multiplicity of equilibria. The sentiment index also increases investment in some states in which the public signal does not. We also observe significant heterogeneity between groups in their mappings of private signals into sentiment reports.