Personal Experiences and Expectations About Aggregate Outcomes

81 Pages Posted: 8 Nov 2018

See all articles by Theresa Kuchler

Theresa Kuchler

New York University (NYU)

Basit Zafar

Arizona State University (ASU) - Department of Economics

Date Written: November 7, 2018

Abstract

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.

Suggested Citation

Kuchler, Theresa and Zafar, Basit, Personal Experiences and Expectations About Aggregate Outcomes (November 7, 2018). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3280377

Theresa Kuchler (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Basit Zafar

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

AZ
United States

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