Behavioural economists, who believe that economic actors are driven as much by hunch or emotion as by pure rationality, are starting to influence more and more economic thought. One area where their influence is increasingly being felt is in theories relating to the business cycle, where confidence is clearly important in determining behaviour. The problem is, how can we measure confidence? This article from The Daily Telegraph, which explains the Skyscraper Index, is an interesting insight into this problem.
The real question prompted by the article is not whether the Skyscraper Index is a useful predictor of recessions, but how we can come up with a good series of leading indicators of confidence and how they can be used to predict the future path of the economic cycle.