Incorporating Subjectivity into Economic Models: A Study on Consumption and Consumer Sentiment in The U.S.

Abstract

This study examines the integration of consumer sentiment into economic models to elucidate consumption dynamics in the United States. Drawing on John Maynard Keynes's concept of 'Animal Spirits,' we analyze the relationship between consumer sentiment and consumption, alongside objective economic indicators. While consumer sentiment demonstrates a significant influence on spending behaviors, its significance diminishes when economic fundamentals are considered. This nuanced perspective underscores the multifaceted nature of consumer sentiment and highlights the need to integrate both subjective and objective factors into economic modeling.