Working Paper: NBER ID: w23418
Authors: Charles F. Manski
Abstract: Economists commonly suppose that persons have probabilistic expectations for uncertain events, yet empirical research measuring expectations was long rare. The inhibition against collection of expectations data has gradually lessened, generating a substantial body of recent evidence on the expectations of broad populations. This paper first summarizes the history leading to development of the modern literature and overviews its main concerns. I then describe research on three subjects that should be of direct concern to macroeconomists: expectations of equity returns, inflation expectations, and professional macroeconomic forecasters. I also describe work that questions the assumption that persons have well-defined probabilistic expectations and communicate them accurately in surveys. Finally, I consider the evolution of thinking about expectations formation in macroeconomic policy analysis. I favorably observe the increasing willingness of theorists to study alternatives to rational expectations assumptions, but I express concern that models of expectations formation will proliferate in the absence of empirical research to discipline thinking. To make progress, I urge measurement and analysis of the revisions to expectations that agents make following occurrence of unanticipated shocks.
Keywords: Probabilistic Expectations; Macroeconomic Policy; Surveys; Economic Behavior
JEL Codes: D84; E03; E66
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rational expectations (D84) | expectations formation (D84) |
| higher education (I23) | lower expectations of job loss (J63) |
| subjective expectations (D84) | actual economic behavior (E70) |
| age (J14) | expectations of job loss (J63) |
| education level (I24) | expectations of job loss (J63) |