Inflation Expectations and Risk Preferences

Lena Dräger, Maximilian Floto and Marina Schröder

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We provide evidence for biases in inflation expectations, where risk-averse households and experts report significantly higher prior inflation expectations. Using a survey randomized control trial (RCT), we can show that information about inflation forecasts closes this expectations gap. Our results are in line with a framework where risk averse agents seek to overestimate inflation in order to maximize future utility. We can show that biases in inflation expectations seem to be related to physical information avoidance, rather than biases in information processing.

Keywords: Inflation expectations; motivated beliefs; risk preferences; households; experts; survey experiment; randomized control trial (RCT) (search for similar items in EconPapers)
JEL-codes: D84 D90 E31 E52 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2025-03
New Economics Papers: this item is included in nep-exp, nep-mon and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-726

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