Expectations Uncertainty and Household Economic Behavior

64 Pages Posted: 13 Dec 2018 Last revised: 13 Oct 2020

See all articles by Elyas Fermand

Elyas Fermand

Santa Clara University (Leavey School of Business); Santa Clara University - Department of Finance

Camelia M. Kuhnen

University of North Carolina Kenan-Flagler Business School & NBER

Geng Li

Board of Governors of the Federal Reserve System

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 29, 2018

Abstract

We show that there exists significant heterogeneity across U.S. households in how uncertain they are in their expectations regarding personal and macroeconomic outcomes, and that uncertainty in expectations predicts households' choices. Individuals with lower income or education, more precarious finances, and living in counties with higher unemployment are more uncertain in their expectations regarding own-income growth, inflation, and national home price changes. People with more uncertain expectations, even accounting for their socioeconomic characteristics, exhibit more precaution in their consumption, credit, and investment behaviors.

Keywords: uncertainty, expectations, precautionary behavior, consumption, credit, portfolio choice, socioeconomic status

JEL Classification: D14, D83, D84, G02, G11

Suggested Citation

Fermand, Elyas and Kuhnen, Camelia M. and Li, Geng and Ben-David, Itzhak, Expectations Uncertainty and Household Economic Behavior (November 29, 2018). Fisher College of Business Working Paper No. 2018-03-025, Charles A. Dice Center Working Paper No. 20018-25, Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Kenan Institute of Private Enterprise Research Paper No. 19-3, 10th Miami Behavioral Finance Conference, Available at SSRN: https://ssrn.com/abstract=3293399 or http://dx.doi.org/10.2139/ssrn.3293399

Elyas Fermand

Santa Clara University (Leavey School of Business)

Santa Clara, CA California 95053
United States

Santa Clara University - Department of Finance

Santa Clara, CA California 95053
United States

Camelia M. Kuhnen (Contact Author)

University of North Carolina Kenan-Flagler Business School & NBER ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
(919) 9623284 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/

Geng Li

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

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