Personal Experiences and Expectations About Aggregate Outcomes
81 Pages Posted: 8 Nov 2018
Date Written: November 7, 2018
We use novel survey data to document that individuals extrapolate from recent personal experiences when forming expectations about aggregate economic outcomes. Recent locally experienced house price movements affect expectations about future US house price changes, and higher experienced house price volatility causes respondents to report a wider distribution over expected US house price movements. Similarly, we exploit within-individual variation in employment status to show that individuals who personally experience unemployment become more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to how informative personal experiences are; it is also inconsistent with risk-adjustment, and more pronounced for less sophisticated individuals.
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