Working Paper: NBER ID: w25336
Authors: Itzhak Bendavid; Elyas Fermand; Camelia M. Kuhnen; Geng Li
Abstract: We show that there exists significant heterogeneity across US households in how uncertain they are in their expectations regarding personal and macroeconomic outcomes, and that uncertainty in expectations predicts households' choices. Individuals with lower income or education, more precarious finances, and living in counties with higher unemployment are more uncertain in their expectations regarding own-income growth, inflation, and national home price changes. People with more uncertain expectations, even accounting for their socioeconomic characteristics, exhibit more precaution in their consumption, credit, and investment behaviors.
Keywords: Expectations; Uncertainty; Household Economic Behavior
JEL Codes: D1; D12; D14; D15; D84; G11; G4; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower income (D31) | increased uncertainty in expectations about income growth (D89) |
| lower education (I24) | increased uncertainty in expectations about income growth (D89) |
| precarious financial situations (D14) | increased uncertainty in economic forecasts (F37) |
| $100,000 increase in annual income (J31) | decrease in uncertainty of approximately 0.3 standard deviations (D89) |
| higher unemployment (J64) | increased uncertainty in economic forecasts (F37) |
| higher uncertainty in economic expectations (D84) | reduced consumption (E21) |
| 1 percentage point increase in uncertainty (D89) | 0.65 percentage point decrease in likelihood of increasing total spending (D12) |
| lower SES (I24) | higher degree of subjective uncertainty (D80) |
| subjective uncertainty (D80) | objective volatility (C69) |