Personal Experiences and Expectations about Aggregate Outcomes

By T. Kuchler, basit. zafar. Journal of Finance, 2019

278 citations recorded by the source corpus.

We use novel survey data to estimate how personal experiences affect household expectations about aggregate economic outcomes in housing and labor markets. We exploit variation in locally experienced house prices to show that individuals systematically extrapolate from recent locally experienced home prices when asked for their expectations about U.S. house price changes over the next year. In addition, higher volatility of locally experienced house prices causes respondents to report a wider distribution over expected future national house price movements. We find similar results for labor market expectations, where we exploit within-individual variation in labor market status to estimate the effect of own experience on national labor market expectations. Personally experiencing unemployment leads respondents to be significantly more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to proxies for how informative personal experiences are, and is more pronounced for less sophisticated individuals.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e3f2eacc9b5b8ff6eb11c5674411bf7ee7e7a93c

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Citations in the corpus

House Price Momentum and Strategic Complementarity (2018, background): “However, their model can only explain a third of momentum when under half of sellers are rational, as suggested by recent experimental evidence (Kuchler and Zafar, 2017; Armona et al. 2018).”
Five Facts about Beliefs and Portfolios (2019, background): “…IQ, place of birth, current location, own past experience, or friends’ past experiences (see, for example, Malmendier and Nagel, 2011; Kuchler and Zafar, 2015; Das, Kuhnen and Nagel, 2017; Bailey et al., 2017, 2018; Ben-David et al., 2018; Coibion, Gorodnichenko and Kamdar, 2018; D’Acunto et…”
Psychology-based Models of Asset Prices and Trading Volume (2018, background): “To make 19There are now several papers that document the effect of personal experience on beliefs about economic outcomes; see, for example, Das et al. (2017) and Kuchler and Zafar (2017).”
IQ, Expectations, and Choice (2019, unknown): “…relationship with economic behavior are Zafar (2011), who studies the formation of expectations by college students, Malmendier and Nagel (2016) and Kuchler and Zafar (2018), who study the effect of personal experiences on expectations about aggregate outcomes, Fuster, Perez-Truglia, Wiederholt,…”
Socioeconomic Status and Macroeconomic Expectations (2017, unknown): “Experimental evidence in Kuhnen (2015) shows that individuals faced with sequences of negative payoffs form overly pessimistic beliefs about the quality of the available investments.”