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Does Experience Shape Subjective Expectations?

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  • Rossmann, Tobias

    (LMU Munich)

Abstract

This paper documents that individuals' expectations about macroeconomic outcomes are systematically linked with the experiences of these macroeconomic outcomes they have made during life. Focusing on expectations about national inflation, national unemployment and national business conditions, I measure individual-specific experiences as weighted averages of these variables over the respondents' lifetime, respectively. I find that experience significantly predicts respondents' expectations in each of these domains and show that individuals generally put more weight on recent rather than distant years when aggregating past information. The empirical model also allows for heterogeneity with respect to observed socio-economic characteristics. The estimates suggest the existence of a gender effect. Compared to females, males put relatively more weight on distant years when aggregating past information, and the association between expectations and past experiences is generally weaker for men.

Suggested Citation

  • Rossmann, Tobias, 2019. "Does Experience Shape Subjective Expectations?," Rationality and Competition Discussion Paper Series 181, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:181
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    Cited by:

    1. Heiss, Florian & Hurd, Michael & van Rooij, Maarten & Rossmann, Tobias & Winter, Joachim, 2022. "Dynamics and heterogeneity of subjective stock market expectations," Journal of Econometrics, Elsevier, vol. 231(1), pages 213-231.
    2. Heiss, Florian & Hurd, Michael & Rossmann, Tobias & Winter, Joachim & van Rooij, Maarten, 2019. "Dynamics and Heterogeneity of Subjective Stock Market Expectations," Rationality and Competition Discussion Paper Series 157, CRC TRR 190 Rationality and Competition.

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    More about this item

    Keywords

    expectations; experience; inflation; unemployment; business conditions;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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