Consumer Belief Formation in Uncertain Times

What can we learn about how uncertainty influences consumer belief formation from post-pandemic survey data? In this paper, we first document that the relationship between consumers' belief uncertainty and rigidity aligns with the qualitative predictions of Bayesian learning, but displays systematic deviations from Rational Expectations. We then use belief rigidity in the post-pandemic economy to distinguish between different sources of uncertainty, namely fundamental and information uncertainty. At the onset of the pandemic, we observe a decline in belief rigidity alongside a rise in belief uncertainty, which we attribute to a regime shift in fundamental and economic policy uncertainty. In contrast, during the subsequent period of high inflation, both belief rigidity and uncertainty increase, driven by a decline in the accuracy of new information. The distinct effects of different sources of uncertainty on belief rigidity are not just a confirmation of Bayesian principles - they have significant implications for macroeconomic dynamics, financial markets, central bank policy and communication in uncertain times.