Extreme macroeconomic risk, personal expectations and financial decisions: an information experiment on five European countries

Following the Covid-19 crisis, extreme macroeconomic risks in terms of both GDP and inflation have returned to the spotlight in Europe. Against this backdrop, we conducted a large-scale online survey experiment in five large European countries (France, Germany, Italy, Spain and the UK) to measure household expectations of future extreme macroeconomic risks and their transmission to personal expectations and planned financial decisions. Exploiting both a between and within-subject design, we provided half of the participants with information about past extreme macroeconomic events in Europe. Our findings indicate that European households have high expectations of future tail macroeconomic events shaped by personal experiences, and that the causal effect of information provision on expectations varies greatly depending on the country and the type of risk. We then find suggestive evidence that expectations of extreme macroeconomic disasters are causally transmitted to personal expectations about one’s future standard of living. However, small variations in expectations of extreme macroeconomic risk do not appear to have a systematic independent impact on planned saving, portfolio, and borrowing decisions.