Mr. Keynes' theory of investment : Do forward looking expectations and weight really matter?
Abstract Keynes argued that profit expectations, and the degree of confidence or weight that managers place in their profit forecasts, determine investment. Previous attempts to test Keynes' theory have been plagued by the absence of any clear measure of entrepreneurs' expectations of future profits. The Conference Board collected managers' self-reported data on expectation of future profits. The Conference Board data also allowed the construction of a measure of the weight assigned by managers to their profit forecasts. With this data, it is concluded that in most industries, investment rises both when managers are more optimistic and when they exhibit greater confidence in their forecast.