Using a representative online panel from the US, we examine how individuals' macroeconomic expectations causally affect their personal economic prospects and their behavior. To exogenously vary respondents' expectations we provide them with different professional forecasts about the likelihood...

We document that the recent house price experiences within an individual's social network affect her perceptions of the attractiveness of property investments, and through this channel have large effects on her housing market activity. Our data combine anonymized social network information from...

This paper provides novel evidence on exchange rate expectations of both chartists and fundamentalists separately. These groups indeed form expectations differently. Chartists change their expectations more often; however, all professionals' expectations vary considerably as they generally...

Many information structures generate correlated rather than mutually independent signals, the news media being a prime example. This paper shows experimentally that in such contexts many people neglect these correlations in the updating process and treat correlated information as independent. In...

We propose a model of instrumental belief choice under loss aversion. When new information arrives, an agent is prompted to abandon her prior. However, potential posteriors may induce her to take actions that generate a lower utility in some states than actions induced by her prior. These losses...

This paper tests the ability of popular New Keynesian models, which are traditionally used to study monetary policy and business cycles, to match the data regarding a key channel for monetary transmission: the dynamic interactions between macroeconomic variables and their corresponding...

We study the impact of diverse beliefs on conduct of monetary policy. We use a New Keynesian Model solved with a quadratic approximation. Aggregation renders the belief distribution an aggregate state variable. Diverse expectations change standard results about a smooth trade-off between...

This paper studies a new aspect of firms' expectation formation by asking whether expectations primarily reflect aggregate, industry-wide information (e.g., industry trends) or disaggregate information (e.g., firm-specific information). First, we show that disaggregate information is strongly...

Are firms’ expectations systematically too optimistic or too pessimistic? Does it matter? We use micro data from the West German manufacturing subset of the IFO Business Climate Survey to infer quarterly production changes at the firm level and combine them with production expectations over a...

This paper considers an intertemporal decision problem in which the agent has limited foresight. It offers an interpretation of why people may smoke when they are young - and arguably have a short horizon of foresight - and refrain from smoking when they get older - and their foresight is better