By Dimitris Georgarakos, Kwang Hwan Kim, Olivier Coibion, Myungkyu Shim, Myunghwan Andrew Lee, Yuriy Gorodnichenko, Geoff Kenny, Seowoo Han, and Michael Weber

Imagine a world where macroeconomic ups and downs don’t disrupt our lives. No recessions that put your job at greater risk, no skyrocketing prices, no financial crises, etc. Sounds ideal, right? But how much would you be willing to sacrifice to make that a reality?

To answer that question, we surveyed consumers across thirteen advanced economies to see how much individuals would trade in terms of their lifetime consumption to eliminate economic volatility (Georgarakos et al. 2025). Here’s what we found.

Key Findings:

• People are willing to give up 5-6% of their lifetime consumption to eliminate economic ups and downs.
• They are also willing to sacrifice around 5% of their lifetime consumption to achieve their preferred inflation levels.
• These figures are much higher than what traditional economic theories suggest.

In other words, while past research has suggested that stabilizing the economy wouldn’t make a big difference in terms of welfare, our study finds that real people think otherwise.

Why Do People Care So Much about Business Cycles?

We found that several factors are particularly important in determining how much people would be willing to pay to avoid business cycles, as illustrated in Figure 1 below.

1. Personal Experience with Macroeconomic Volatility
   • People in countries with historically volatile economies are willing to pay more. In our sample, Germany and the Netherlands are the two countries with the lowest macroeconomic volatility over the last thirty years, and consumers in those countries report that they would sacrifice around 3-4% of their consumption to eliminate business cycles. In the two most volatile countries in our sample, Spain and Greece, consumers would be prepared to sacrifice almost twice as much to eliminate business cycle risk.
2. Cyclicality of Consumption and Income
   • Individuals whose spending and income are more sensitive to changes in the state of the economy feel the effects of downturns more. As a result, we would expect them to be willing to sacrifice more to avoid instability. We find that this is indeed the case. Because of the different types of jobs and assets that people have, there is remarkable variation in the extent to which people are caused, either positively or negatively to business cycle fluctuations. The U.S., for example, is one of the countries in which people’s incomes are the most sensitive to business cycles, and U.S. consumers correspondingly report some of the highest WTP to achieve economic stability across countries.
3. Economic Uncertainty
   • Our willingness to pay to eliminate future business cycles should also depend on how big we think those future cycles are likely to be: those who foresee very little economic volatility in the future should not be willing to pay nearly as much as those who expect to see large swings. We find this to be one of the main determinants of people’s WTP to eliminate business cycles, as shown in the figure below.

Figure 1: Determinants of the Willingness to Pay to Eliminate Business Cycles

There are many other factors that matter as well, but quantitatively, we found these three explanations to be some of the most important when it comes to eliminating business cycles.

What about inflation?

For inflation, we wanted to know how much people would be willing to sacrifice to see inflation reach the ideal level for them. What inflation rate would that be? We found that people wanted to see prices fall overall, and by pretty large amounts. Part of this desire for falling prices was to offset the perceived price increases during the inflation surge: people living in countries where prices went up more following Covid generally wanted to see bigger price declines than those in countries who experienced more moderate inflation.

But just because someone would like to see prices fall doesn’t mean that they would be prepared to sacrifice much to achieve that outcome. So we asked survey participants how much they would be prepared to sacrifice to achieve their preferred inflation target. The answer was again close to 5% of their consumption, on average.

Why so high? One reason is that people want to see large changes in the inflation rate. As shown in the figure below, people living in countries where inflation has been low are willing to pay less to reduce inflation, because they perceive a smaller decline as being necessary.

Figure 2: Historical Inflation and the Willingness to Pay to Reduce Inflation

Another factor that helps explain a high WTP to reduce inflation is the fact that people associate higher inflation with more volatile inflation, and the volatility in inflation is itself perceived as costly as shown in Figure 2.

Finally, a third important reason why people are willing to pay so much to reduce inflation is that they seem to perceive higher inflation as happening when economic times are bad, so reducing inflation also serves to reduce business cycle volatility and vice-versa. Consistent with notion, we find that people who report that they are willing to pay more to eliminate business cycles are also willing to pay more to reduce inflation, as shown in Figure 3. Even though macroeconomists view the long-run level of inflation and economic volatility as largely separate things, this is not how consumers perceive them, leading to a strong correlation between their willingness to pay for either.

Figure 3: WTP to Eliminate Business Cycles vs WTP to Reduce Inflation

Implications for Policymakers

Traditional economic models often assume that people don’t worry much about business cycle volatility because they can “smooth” their consumption over time—saving in good times and spending in bad times. But our study challenges that idea.

Instead, it shows that people strongly prefer a stable economy and are willing to give up a significant portion of their potential income to achieve it. This insight suggests that macroeconomic policies should align more closely with what people actually value, not just what economic models predict.

At the end of the day, economic stability isn’t just an abstract concept—it’s something that affects real lives. Whether it’s job security, price stability, or financial peace of mind, people are willing to pay a surprising amount to avoid uncertainty.

For policymakers, that’s a message worth listening to.

References:

Georgarakos, Dimitris, Kwang Hwang Kim, Olivier Coibion, Myungkyu Kim, Myunghwang Lee, Yuriy Gorodnichenko, Geoff Kenny, Seowoo Han, and Michael Weber, 2025. “How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach,” Manuscript.