Flower growing in shape of line chart

Jennifer Tapias Derch

The Impact of Animal Spirits on Carbon Emissions

Consumer sentiment may have significant environmental effects.

Few among us believe positive thinking can cure climate change. And yet a certain brand of it might help, suggests research by Chicago Booth’s George M. Constantinides and Utrecht University’s Maurizio Montone.

It’s been almost a century since John Maynard Keynes put forward the idea that “animal spirits,” or irrational beliefs or feelings, can influence markets. The empirical research that grew out of this has demonstrated that a population’s belief in the health of an economy, even when arguably divorced from fact, can become a self-fulfilling prophecy.

The relationship between economic confidence and other system-wide outcomes is a newer field of inquiry. For example, does sentiment affect how an economy burns fossil fuels? Economic confidence might matter if the short-term boost it gives to the economy leads to companies making longer-term technological investments that improve their energy efficiency. Or confidence could reduce environmental efficiency if positive feelings about the future were to lead executives to disregard environmental risks.

Constantinides and Montone looked at consumer sentiment scores for 42 countries in the Organisation for Economic Co-Operation and Development database from 1990 to 2018; those countries’ rates of GDP growth, capital formation, and other economic indicators; and country-level greenhouse gas and CO2 emissions in the same period.

According to the analysis, sentiment had a direct positive impact on environmental efficiency: In a country that experienced a baseline improvement in sentiment, emissions produced per unit of GDP that year fell by 6–7 percent, with a gradual tapering off over the subsequent four years. Further analyses showed similar results for emission levels, indicating a genuine reduction in aggregate pollution. The stronger the sentiment, the more carbon efficient the economy became.

The study explains why: Sentiment improvements eased financial constraints by raising stock prices and lowering the cost of capital. This enabled companies to invest in both productivity-enhancing and green technologies, especially newer, more innovative renewables such as solar and wind. “As a result, we observe an improvement in energy efficiency both in power generation and final consumption,” says Constantinides. Because the investments permanently upgraded productive capacity, the efficiency gains persisted for years.

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Efficiency gains were the biggest drivers of economy-wide changes, especially in the energy industry, the most-polluting sector globally, according to the research. The degree of impact also varied across economies. The researchers find that their results held primarily in countries with volatile GDP growth, corroborating their theoretical prediction that reliance on sentiment is stronger when economic fundamentals are harder to assess.

But other factors, such as culture, may also play a role. The researchers find that the impact of sentiment on environmental efficiency was greater in cultures with a long-term orientation and a propensity for risk, as measured by a 2018 global survey of cultural traits introduced by a research team led by University of Bonn’s Armin Falk.

One concern is that people may become optimistic sensing that changes afoot could produce environmental efficiency gains, Constantinides and Montone argue. They ruled out this possibility by looking at fluctuations in sentiment produced by something else entirely: the performance of a country’s national soccer team.

Sports team performance has been shown to affect stock market returns and economic growth. Similarly, Constantinides and Montone find, world rankings for national men’s teams in the International Federation of Association Football (FIFA) predict consumer sentiment.

Countries whose FIFA national teams climbed in the rankings, which are based on match results, experienced corresponding increases in consumer confidence, according to the researchers’ data. Unlike single tournaments such as the World Cup, these rankings reflect continuous match play throughout the year, providing a steady source of variation in national mood.

And these variations, they find, have knock-on effects on the greenhouse gas emissions of a country’s industries, both immediately and over several years. Constantinides and Montone’s analysis suggests that soccer victories improve consumer sentiment, and this improvement spurs a subsequent decrease in emission intensity.

According to World Bank data from 1961 to 2025, Argentina’s GDP growth has fluctuated more wildly than Spain’s. So Spain—fresh off a World Cup win—reaching the top spot in the FIFA rankings this year will likely produce a relatively more muted change in consumer sentiment and environmental efficiency than Argentina’s top spot would have done.

Policymakers don’t have much of a hand in national soccer results, but Constantinides and Montone argue there are nonetheless practical lessons to be taken from their work. “The findings of this paper challenge the prevailing view that there is a trade-off between economic and sustainable outcomes, suggesting instead that these goals can be jointly achieved in periods of high sentiment,” they write. “Green policies can be optimally timed to periods of optimism among economic agents.”

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