Rounding Up: Complexity, Satisficing, and Bias in Inflation Expectations

Michael McMahon, Luba Petersen and Ryan Rholes

No 21374, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using over 17,000 incentivized inflation forecasts, we provide causal evidence that environmental complexity and subjective complexity are distinct drivers of rounding in survey responses. Experimental variation in shock volatility and central-bank communication regimes shows that both channels raise forecast uncertainty and the propensity to round, with subjective complexity the dominant force — explaining 58–86% of rounding depending on horizon and specification. Survey of Consumer Expectations microdata corroborate these findings: rounding declines with survey tenure, rises with inflation volatility, and inflates measured inflation expectations by nearly 7 percentage points among inexperienced respondents.

Keywords: Expectation formation; Uncertainty (search for similar items in EconPapers)
JEL-codes: C91 D84 E52 (search for similar items in EconPapers)
Date: 2026-04
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