Among the millions of business school research papers out there, one of the most influential was co-authored by Berkeley behavioral economist Ulrike Malmendier. Her 2021 article “Exposure to Grocery Prices and Inflation Expectations” was recently ranked third by the database startup Overton, which analyzes the impact of academic research on policy.
In their paper, published in the Journal of Political Economy, Professor Malmendier et al. argued that the price of everyday goods like groceries exerts a disproportionate influence on our perception of inflation.
The finding helps explain why Democrats failed to assuage voters’ concerns about the economy in the lead-up to the 2024 presidential election.
While Biden and Harris could point to high-level signs of economic recovery—unemployment dipped to its lowest level in 54 years in 2023, inflation dropped significantly from its peak in June 2022, interest rates were finally falling—poll after poll showed that voters remained frustrated with the economy and ranked inflation as one of their top concerns.
“Our economy [was] doing great. That was the truth,” Malmendier said. But she notes that pointing that out did not respond to the needs and the fears that people had.
Traditional neoclassical economics imagines humans as rational supercomputers programmed to optimize their well-being based on the best available information. But Malmendier’s research contends that the human brain is a memory machine, wired to prioritize high-emotion experiences (like the shock induced by the exorbitant price of eggs) over cold, hard facts.
Scientists call it “synaptic tagging.” Every time we have a persistent high-emotion experience, the brain forges a deep, long-lasting connection. Learned knowledge, like data showing that inflation is in fact cooling, has little power to undo that.
Furthermore, Malmendier’s research suggests that these effects endure. People who lived through the Great Depression, for instance, were much less likely to invest in the stock market. If you experienced the spike in gas prices during the pandemic, you likely still think of them as high, even after they’ve fallen. And if your grocery bill ballooned in 2022, the feeling of being squeezed at the checkout counter stays with you. Inflation may cool, but fear and anxiety linger.
This fear was something the Trump campaign capitalized on. “Starting on Day 1, we will end inflation and make America affordable again, to bring down the prices on all goods,” Trump pledged at a campaign stop in August.
“You could win an election to a large extent on a platform of: I take inflation seriously, and I will be able to do something about it,” Malmendier said.
Ironically, the White House is pushing policies that will have the opposite effect.
“It is doubly frustrating that this new administration can come in and impose various measures, such as, famously, the tariffs, which will have a direct impact on inflation and will increase prices,” Malmendier said. “But at the same time … all of this proves that how our experiences get ingrained in our brain and affect our decision-making is just a little bit different from what the traditional neoclassical models of belief formation say.”
For years, political operatives have turned to the so-called “beer test” to measure a candidate’s appeal. Who would voters most like to have a drink with? Malmendier’s research suggests that a “fear test” might be the better assessment. Who directly addresses voters’ anxieties? Who speaks to the things that keep them up at night? Who makes them feel seen in their struggle to pay the grocery bill?
