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The effect of question wording on consumers’ reported inflation expectations

Author

Listed:
  • Bruine de Bruin, Wändi
  • van der Klaauw, Wilbert
  • Topa, Giorgio
  • Downs, Julie S.
  • Fischhoff, Baruch
  • Armantier, Olivier

Abstract

Economists and policy makers increasingly consult national household surveys asking individuals about their economic circumstances, financial decisions, and expectations for the future. For decades, the Reuters/Michigan Survey of Consumers and other national surveys have asked about expectations for “prices in general”, with responses being used by academic economists, policy makers, and central bankers. Although median responses track official inflation estimates, respondents exhibit considerable disagreement, with some reporting seemingly large overestimations. Here, we demonstrate that changes in the wording of survey questions about inflation expectations affect the central tendency of responses as well as their dispersion. We randomly assigned respondents to questions asking about “prices in general”, “inflation”, or “prices you pay”. Respondents’ expectations and perceptions were lower and less dispersed when questions asked about “inflation” instead of “prices in general” or “prices you pay”, with the latter two formulations eliciting similar response patterns. These question-wording effects were mediated by how much respondents thought of (extreme) personal price experiences when receiving questions about “prices in general” or “prices you pay”. Compared to questions about “inflation”, questions about “prices in general” and “prices you pay” elicited expectations that were more strongly correlated to expected increases in gas prices, which were relatively large and likely salient at that time.

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  • Bruine de Bruin, Wändi & van der Klaauw, Wilbert & Topa, Giorgio & Downs, Julie S. & Fischhoff, Baruch & Armantier, Olivier, 2012. "The effect of question wording on consumers’ reported inflation expectations," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 749-757.
  • Handle: RePEc:eee:joepsy:v:33:y:2012:i:4:p:749-757
    DOI: 10.1016/j.joep.2012.02.001
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    References listed on IDEAS

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    3. Serafín Frache & Rodrigo Lluberas, 2017. "New information and inflation expectations among firms," Documentos de trabajo 2017013, Banco Central del Uruguay.
    4. Olivier Coibion & Yuriy Gorodnichenko & Rupal Kamdar, 2018. "The Formation of Expectations, Inflation, and the Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 56(4), pages 1447-1491, December.
    5. Olivier Coibion & Yuriy Gorodnichenko & Saten Kumar, 2018. "How Do Firms Form Their Expectations? New Survey Evidence," American Economic Review, American Economic Association, vol. 108(9), pages 2671-2713, September.
    6. Wändi Bruine de Bruin & Lila Rabinovich & Kate Weber & Marianna Babboni & Monica Dean & Lance Ignon, 2021. "Public understanding of climate change terminology," Climatic Change, Springer, vol. 167(3), pages 1-21, August.
    7. Piotr Białowolski, 2016. "The influence of negative response style on survey-based household inflation expectations," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 509-528, March.
    8. Olivier Armantier & Giorgio Topa & Wilbert Van der Klaauw & Basit Zafar, 2017. "An overview of the Survey of Consumer Expectations," Economic Policy Review, Federal Reserve Bank of New York, issue 23-2, pages 51-72.
    9. N. A. Karlova & E. V. Puzanova & I. V. Bogacheva & A. G. Morozov, 2020. "How Are Inflation Expectations of Enterprises Formed: Survey Results," Studies on Russian Economic Development, Springer, vol. 31(5), pages 522-532, September.
    10. Alycia Chin & Wändi Bruin, 2017. "Understanding the Formation of Consumers' Stock Market Expectations," Journal of Consumer Affairs, Wiley Blackwell, vol. 51(1), pages 200-210, March.
    11. Peter, Eckley, 2015. "(Non)rationality of consumer inflation perceptions," MPRA Paper 77082, University Library of Munich, Germany.
    12. Lucas Marc Fuhrer & Basil Guggenheim & Matthias Jüttner, 2019. "A survey-based estimation of the Swiss franc forward term premium," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-18, December.
    13. Coibion, Olivier & Gorodnichenko, Yuriy & Kumar, Saten & Pedemonte, Mathieu, 2020. "Inflation expectations as a policy tool?," Journal of International Economics, Elsevier, vol. 124(C).
    14. Armantier, Olivier & Koşar, Gizem & Pomerantz, Rachel & Skandalis, Daphné & Smith, Kyle & Topa, Giorgio & van der Klaauw, Wilbert, 2021. "How economic crises affect inflation beliefs: Evidence from the Covid-19 pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 443-469.
    15. Olympia Bover, 2015. "Measuring expectations from household surveys: new results on subjective probabilities of future house prices," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(4), pages 361-405, November.
    16. Oliver Bachmann & Klaus Gründler & Niklas Potrafke & Ruben Seiberlich, 2021. "Partisan bias in inflation expectations," Public Choice, Springer, vol. 186(3), pages 513-536, March.
    17. Bruine de Bruin, Wändi & van der Klaauw, Wilbert & van Rooij, Maarten & Teppa, Federica & de Vos, Klaas, 2017. "Measuring expectations of inflation: Effects of survey mode, wording, and opportunities to revise," Journal of Economic Psychology, Elsevier, vol. 59(C), pages 45-58.
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    19. Jakob de Haan & Marco Hoeberichts & Renske Maas & Federica Teppa, 2016. "Inflation in the euro area and why it matters," DNB Occasional Studies 1403, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    Inflation expectations; Question design; Consumer surveys;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • D - Microeconomics

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