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Personal Experiences and Expectations about Aggregate Outcomes
Author(s) -
KUCHLER THERESA,
ZAFAR BASIT
Publication year - 2019
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12819
Subject(s) - unemployment , volatility (finance) , pessimism , affect (linguistics) , economics , house price , demographic economics , survey data collection , exploit , psychology , monetary economics , econometrics , macroeconomics , philosophy , statistics , mathematics , computer security , communication , epistemology , computer science
Using novel survey data, we 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 U.S. house price changes and higher experienced house price volatility causes respondents to report a wider distribution over expected U.S. house price movements. When we exploit within‐individual variation in employment status, we find 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, is inconsistent with risk adjustment, and is more pronounced for less sophisticated individuals.