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Behavioral Underpinnings Of Overreaction In Inflation Expectations Across Economic Agents

Author

Listed:
  • Camille Cornand

    (CNRS - Centre National de la Recherche Scientifique, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique)

  • Paul Hubert

    (Centre de recherche de la Banque de France - Banque de France)

  • Rose Portier

    (Centre de recherche de la Banque de France - Banque de France, UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This paper explores overreaction to news in agents' inflation expectations—households, firms, professional forecasters, policymakers, and participants to experiments—and examines the role of four behavioral factors: recency bias, memory of inflation, salience, and the representativeness heuristic. All agent categories show individual overreaction to news, with notable heterogeneity. Salience explains overreaction for most groups. Households exhibit a broad range of biases—recency bias, salience, and the representativeness heuristic—while firms are mainly influenced by salience. Finally, the paper offers insights on the generalizability of experimental inflation expectations.

Suggested Citation

  • Camille Cornand & Paul Hubert & Rose Portier, 2025. "Behavioral Underpinnings Of Overreaction In Inflation Expectations Across Economic Agents," Working Papers hal-05133563, HAL.
    • Handle: RePEc:hal:wpaper:hal-05133563
    Note: View the original document on HAL open archive server: https://hal.science/hal-05133563v1
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