Why Survey-Based Subjective Expectations Are Meaningful and Important

Francesco D'Acunto and Michael Weber
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Francesco D'Acunto: McDonough School of Business, Georgetown University, Washington, DC, USA

Annual Review of Economics, 2024, vol. 16, issue 1, 329-357

Abstract: For decades, households’ subjective expectations elicited via surveys have been considered meaningless because they often differ substantially from the forecasts of professionals and ex-post realizations. In sharp contrast, the literature we review shows that household characteristics and the ways in which households collect and process economic information help us understand previously considered puzzling facts about their subjective expectations. In turn, subjective expectations contribute to explain heterogeneous consumption, saving, investment, and debt choices as well as different reactions by similar households to the same monetary and fiscal policy measures. Matching microdata on households’ characteristics with the price signals the same households observe, their subjective expectations, and their real-world economic decisions is crucial to establishing these facts. Our growing understanding of households’ subjective expectations inspires several theoretical and empirical research directions and begets the design of innovative and more effective policy instruments.

Keywords: information experiments; cognition; inflation; monetary policy; heterogeneous agents; beliefs (search for similar items in EconPapers)
JEL-codes: C90 D14 D84 E31 E52 E71 G11 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1146/annurev-economics-091523-043659

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