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The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey

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  • Mitchell, James
  • Weale, Martin R.

Abstract

This paper assesses the accuracy of individuals' expectations of their financial circumstances, as reported in the British Household Panel Survey, as predictors of outcomes and identifies what factors influence their reliability. As the data are qualitative bivariate ordered probit models, appropriately identified, are estimated to draw out the differential effect of information on expectations and realisations. Rationality is then tested and we seek to explain deviations of realisations from expectations at a micro-economic level, possibly with reference to macroeconomic shocks. A bivariate regime-switching ordered probit model, distinguishing between states of rationality and irrationality, is then estimated to identify whether individual characteristics affect the probability of an individual using some alternative model to rationality to form their expectations.

Suggested Citation

  • Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:6140
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    Cited by:

    1. Bovi, Maurizio, 2009. "Economic versus psychological forecasting. Evidence from consumer confidence surveys," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 563-574, August.
    2. Péter Gábriel, 2010. "Household inflation expectations and inflation dynamics," MNB Working Papers 2010/12, Magyar Nemzeti Bank (Central Bank of Hungary).
    3. Maurizio Bovi, 2008. "The “Psycho-analysis” of Common People’s Forecast Errors. Evidence from European Consumer Surveys," ISAE Working Papers 95 Classification-JEL C42, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    4. David G. Blanchflower & Conall MacCoille, 2009. "The formation of inflation expectations: an empirical analysis for the UK," NBER Working Papers 15388, National Bureau of Economic Research, Inc.
    5. Abubakar Mammadi & Habu Mallam Baba & Sadiq Tukur & Abdul Azeez Adam Muhammad & Umar Abdullahi, 2020. "Measuring Residents Satisfaction Levels of Public Housing in Maiduguri Metropolis of Borno State, Nigeria," Traektoriâ Nauki = Path of Science, Altezoro, s.r.o. & Dialog, vol. 6(3), pages 3001-3020, Macrh.
    6. Sarah Brown & Karl Taylor, 2008. "Expectations, Reservation Wages And Employment: Evidence From British Panel Data," Working Papers 2008007, The University of Sheffield, Department of Economics, revised May 2008.

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    More about this item

    Keywords

    household behaviour; expectation formation;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D19 - Microeconomics - - Household Behavior - - - Other

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