Revisions in investor beliefs about productivity prospects can partly account for business expansions and contractions. If favourable news about future technological opportunities can seed a boom today in consumption and investment before the actual technological improvement arrives and is realised, news that future productivity growth may not be as good as was previously expected can induce a recession without any actual change in productivity ever occurring.
Investors build in anticipation, starting new projects and recruiting more staff. Their forecasts can turn out to be too optimistic. When entrepreneurial expectations of future productivity are revised, investment demand can fall because of an excess in capital accumulation – recent investments were made under more optimistic beliefs about productivity (Beaudry and Portier 2004).
Investment demand must be muted for a time until the excess capital accumulation is brought into use, refitted or scraped. There also will be layoffs and a lull in recruitment. Job search strategies must also change as job seekers redirect their careers in light of the news about their revised prospects in different firms, industries and competing occupations.
The optimism and pessimism of investors are rational profit-seeking responses to new entrepreneurial knowledge. Profit expectations reflect consumer preferences, resource constraints and technological factors as they exist and are forecast to change and actual and forecasted opportunities and constraints in the investment sector. Entrepreneurs are dynamic risk takers who profit from anticipating shifts in consumer demand, input costs and technology.
Recessions and booms can arise due to the challenges facing entrepreneurs in forecasting the uncertain and ever-changing future demand for new capital that is implied by their forecasts of consumer demand and technological opportunities as Beaudry and Portier (2004) explain:
The view that recession and booms may arise as the result of investment swings generated by agents’ difficulties to properly forecast the economy’s need in terms of capital has a long tradition in economics.
For example, this difficulty was seen by Pigou as being an inherent feature of any economy with technological progress.
As emphasized in Pigou (1926), when agents are optimistic about the future and decide to build up capital in expectation of future demand then, in the case where their expectations are not met, there will be a period of retrenched investment which is likely to cause a recession.
Revisions in entrepreneurial beliefs and investment plans can be required when new information is uncovered (Beaudry and Portier 2004; Sill 2009). There can be lulls in investment demand following these revisions to entrepreneurial forecasts leading to recessions. As Pigou noted in 1927:
The varying expectations of business men … constitute the immediate cause and direct causes or antecedents of industrial fluctuations
Utopia, you are standing in it! 
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