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Expectations with Endogenous Information Acquisition: An Experimental Investigation

Author

Listed:
  • Andreas Fuster
  • Ricardo Perez-Truglia
  • Mirko Wiederholt
  • Basit Zafar

Abstract

Information frictions play an important role in many theories of expectation formation. We use a survey experiment to generate direct evidence on how people select, acquire and process information. Participants can buy different information signals that could help them forecast future national home prices. We elicit their willingness to pay for information, and introduce exogenous variation in the cost of information. We find that participants put substantial value on their preferred signal and, when acquired, incorporate the signal in their beliefs. However, they disagree on which signal to buy. As a result, making information cheaper does not decrease the cross-sectional dispersion of expectations. We further document that numeracy and the revealed “taste” for accurate expectations are important correlates of heterogeneity in all stages of the process. We provide a model with costly acquisition and processing of information, which can match most of our empirical results.

Suggested Citation

  • Andreas Fuster & Ricardo Perez-Truglia & Mirko Wiederholt & Basit Zafar, 2018. "Expectations with Endogenous Information Acquisition: An Experimental Investigation," NBER Working Papers 24767, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24767
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    Citations

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    Cited by:

    1. Christopher Roth & Johannes Wohlfart, 2020. "How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 731-748, October.
    2. Haaland, Ingar & Roth, Christopher & Wohlfart. Johannes, 2020. "Designing Information Provision Experiments," The Warwick Economics Research Paper Series (TWERPS) 1275, University of Warwick, Department of Economics.
    3. D'Acunto, Francesco & Hoang, Daniel & Paloviita, Maritta & Weber, Michael, 2019. "IQ, Expectations, and Choice," Research Discussion Papers 2/2019, Bank of Finland.
    4. Chopra, Felix & Haaland, Ingar & Roth, Christopher, 2021. "The Demand for Fact-Checking," The Warwick Economics Research Paper Series (TWERPS) 1357, University of Warwick, Department of Economics.
    5. Elisabeth Grewenig & Philipp Lergetporer & Katharina Werner & Ludger Woessmann, 2019. "Incentives, search engines, and the elicitation of subjective beliefs: evidence from representative online survey experiments," CESifo Working Paper Series 7556, CESifo.
    6. Francesco D'Acunto & Daniel Hoang & Maritta Paloviita & Michael Weber, 2020. "Effective Policy Communication: Targets versus Instruments," Working Papers 2020-148, Becker Friedman Institute for Research In Economics.
    7. Brad C. Nathan & Ricardo Perez-Truglia & Alejandro Zentner, 2020. "My Taxes are Too Darn High: Why Do Households Protest their Taxes?," NBER Working Papers 27816, National Bureau of Economic Research, Inc.
    8. Darya Korlyakova, 2021. "Learning about Ethnic Discrimination from Different Information Sources," CERGE-EI Working Papers wp689, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    9. Nicolas L. Bottan & Ricardo Perez-Truglia, 2020. "Betting on the House: Subjective Expectations and Market Choices," NBER Working Papers 27412, National Bureau of Economic Research, Inc.
    10. Jesper Akesson & Sam Ashworth-Hayes & Robert Hahn & Robert D. Metcalfe & Itzhak Rasooly, 2020. "Fatalism, Beliefs, and Behaviors During the COVID-19 Pandemic," NBER Working Papers 27245, National Bureau of Economic Research, Inc.
    11. Marcelo L. Bérgolo & Rodrigo Ceni & Guillermo Cruces & Matias Giaccobasso & Ricardo Perez-Truglia, 2017. "Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment," NBER Working Papers 23631, National Bureau of Economic Research, Inc.
    12. Fehr, Dietmar & Vollmann, Martin, 2020. "Misperceiving Economic Success: Experimental Evidence on Meritocratic Beliefs and Inequality Acceptance," Working Papers 0695, University of Heidelberg, Department of Economics.
    13. Tobin Hanspal & Annika Weber & Johannes Wohlfart, 2020. "Exposure to the Covid-19 Stock Market Crash and its Effect on Household Expectations," CESifo Working Paper Series 8244, CESifo.
    14. Zoë B. Cullen & Ricardo Perez-Truglia, 2018. "The Salary Taboo: Privacy Norms and the Diffusion of Information," NBER Working Papers 25145, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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