Expectations With Endogenous Information Acquisition: An Experimental Investigation

103 Pages Posted: 12 Jul 2018 Last revised: 18 Sep 2020

See all articles by Andreas Fuster

Andreas Fuster

Swiss National Bank - Financial Stability

Ricardo Perez-Truglia

University of California, Berkeley; National Bureau of Economic Research (NBER)

Mirko Wiederholt

Sciences Po

Basit Zafar

Arizona State University (ASU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2019

Abstract

Information frictions play an important role in many theories of expectation formation. We use a survey experiment to generate direct evidence on how people select, acquire and process information. Participants can buy different information signals that could help them forecast future national home prices. We elicit their willingness to pay for information, and introduce exogenous variation in the cost of information. We find that participants put substantial value on their preferred signal and, when acquired, incorporate the signal in their beliefs. However, they disagree on which signal to buy. As a result, making information cheaper does not decrease the cross-sectional dispersion of expectations. We further document that numeracy and the revealed “taste” for accurate expectations are important correlates of heterogeneity in all stages of the process. We provide a model with costly acquisition and processing of information, which can match most of our empirical results.

Keywords: Expectations, Experiment, Housing, Information Frictions, Rational Inattention

JEL Classification: C81, C93, D80, D83, D84, E31, E58

Suggested Citation

Fuster, Andreas and Perez-Truglia, Ricardo and Wiederholt, Mirko and Zafar, Basit, Expectations With Endogenous Information Acquisition: An Experimental Investigation (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3200073 or http://dx.doi.org/10.2139/ssrn.3200073

Andreas Fuster

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

Ricardo Perez-Truglia (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mirko Wiederholt

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

Basit Zafar

Arizona State University (ASU) - Department of Economics ( email )

AZ
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
134
Abstract Views
1,240
rank
235,177
PlumX Metrics