People appear consistently to discount too heavily future rewards, a property called hyperbolic discounting. 20 This can explain myopic saving behaviour by households and companies, when tomorrow’s consumption is brought forward to today. 21 And it can explain political business cycles, when tomorrow’s GDP is brought forward to today. 22 Myopic behaviour also appears rife in risk decisions. People appear to exhibit risk myopia, discounting risk events more heavily the longer the period that passes without that risk materialising. 23 This is the behaviour we see from car drivers whose speed gradually  13  Ross (1973). 14  Orlowski and Wateska (1992). 15  Mischel (2014). 16  As discussed in Urminsky and Zauberman (2014). 17  Wang et al (2011). 18  Thaler and Shefrin (1981). 19  McClure et al (2004), Figner et al (2010) and Lowenstein et al (2008)  20  Ainslie (1975). 21  Laibson (1997). 22  Nordhaus (1975). 23  Kahneman and Tversky (1979) and Thaler, Kahneman, Tversky and Schwartz (1997). BIS central bankers’ speeches  3  increases after witnessing an accident. It was also the behaviour we saw during the Great Moderation when financial markets suffered progressively greater risk myopia (Chart 1). Hubris biases In 1965, psychologist Stuart Oskamp performed a multiple choice test on a group of psychology students based on a case study. He also asked them to assign a confidence rating to their answer.
In the early days of the MPC, the Bank used experimental evidence to assess the impact of committee decisionmaking. It found they made for better decision than individuals, by eliminating the bad play of individuals but also by promoting learning among Committee members. 57 Subsequent evidence from real-world MPC decision-making has found the same. 58 For effective information aggregation, individual MPC members need to bring a diversity of views. While difficult to observe directly, voting patterns suggest a reasonable degree of such diversity. There has been at least one member dissent from an MPC decision at around half of all meetings (Chart 8). External MPC members have contributed importantly to this diversity. On average, they have been around twice as likely as internals to dissent from monetary policy decisions (Chart 9). And although less likely to be in a minority, the Governor of the day has been outvoted on nine occasions. 59 Voting diversity does not of course prevent collective over-optimism. That might arise, for example, if the MPC consistently over-estimated its ability to forecast the economy. Since 1996, the Bank has published forecast paths for inflation and output growth, together with its assessment of the uncertainty around these estimates – so-called “fan charts”. 60 Chart 10 shows the fan chart for inflation from the Bank’s most recent Inflation Report. These fan charts allow us to conduct a real-world version of Oskamp’s experiment. Chart 11 plots the standard deviation of the Bank’s fan charts for output and inflation over time.