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The role of social effects in shaping beliefs about the economy

Author

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  • Markus Knell
  • Helmut Stix

Abstract

We use survey data to demonstrate that individuals extrapolate from their social environment when forming estimates about aggregate economic outcomes (e.g. the aggregate homeownership rate). In a first approach, we follow the previous literature and construct hypothetical peer groups using information on the location, age, and education of respondents. We confirm that the average homeownership rates in these ‘constructed peer groups’ affect respondents’ subjective estimates of national homeownership rates. In a second approach, we extend the previous literature and utilize direct information provided by survey participants about the characteristics of their peer groups. We show that these ‘self-assessed peer groups’ are even better predictors for how survey respondents assess the aggregate measure. We show that the same mechanisms are at work for estimates of the national unemployment rate. We also demonstrate that individuals who are less knowledgeable about economic matters rely more on peer group information.

Suggested Citation

  • Markus Knell & Helmut Stix, 2025. "The role of social effects in shaping beliefs about the economy," Oxford Economic Papers, Oxford University Press, vol. 77(1), pages 166-189.
    • Handle: RePEc:oup:oxecpp:v:77:y:2025:i:1:p:166-189.
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    File URL: http://hdl.handle.net/10.1093/oep/gpae021
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    More about this item

    Keywords

    reference groups; expectations; perceptions; bias;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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