Recency Effects in Perceived Uncertainty

Firms frequently revise not only their expectations, but also how uncertain they feel about those expectations. Using the U.S. Survey of Business Uncertainty, we study perceived uncertainty about firms’ own sales and employment growth. Reported uncertainty rises after larger revisions to firms’ point forecasts, with the strongest response to the most recent revision. This recency pattern remains visible outside elevated sectoral-volatility episodes. We develop a model in which agents learn about a constant-volatility process but recall older observations noisily. Noisy recall gives recent surprises disproportionate influence, even when objective volatility is constant.