Expectations with Endogenous Information Acquisition: An Experimental Investigation

Andreas Fuster, Ricardo Perez-Truglia, Mirko Wiederholt () and Basit Zafar

No 24767, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Information frictions play an important role in many theories of expectation formation. We use a survey experiment to generate direct evidence on how people select, acquire and process information. Participants can buy different information signals that could help them forecast future national home prices. We elicit their willingness to pay for information, and introduce exogenous variation in the cost of information. We find that participants put substantial value on their preferred signal and, when acquired, incorporate the signal in their beliefs. However, they disagree on which signal to buy. As a result, making information cheaper does not decrease the cross-sectional dispersion of expectations. We further document that numeracy and the revealed “taste” for accurate expectations are important correlates of heterogeneity in all stages of the process. We provide a model with costly acquisition and processing of information, which can match most of our empirical results.

JEL-codes: C81 C93 D80 D83 D84 E27 E3 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-exp, nep-mac and nep-upt
Note: AP ME
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Citations: View citations in EconPapers (40)

Published as Andreas Fuster & Ricardo Perez-Truglia & Mirko Wiederholt & Basit Zafar, 2022. "Expectations with Endogenous Information Acquisition: An Experimental Investigation," The Review of Economics and Statistics, vol 104(5), pages 1059-1078.

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Journal Article: Expectations with Endogenous Information Acquisition: An Experimental Investigation (2022)
Working Paper: Expectations with Endogenous Information Acquisition: An Experimental Investigation (2022)
Working Paper: Expectations with Endogenous Information Acquisition: An Experimental Investigation (2022)
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