Christopher Palmer - MIT (Cancelled)

“Do Stated Expectations Understate Extrapolation? New Evidence for the Beliefs Channel of Investment Demand” joint with Haoyang Liu


Abstract

Empirical work often finds only a weak correlation between investment and surveyed beliefs. We document a systematic wedge between an individual's stated forecasted returns and the beliefs used in investment decisions. In particular, perceived past returns predict individual real estate investment decisions even conditional on an individual's forecasted distribution of home-price growth. We present evidence that heterogenous confidence in their own forecasts helps explain why many retail investors rely on past returns over their survey-elicited forecasts when making investment decisions. Survey respondents that rely on past returns more than their surveyed forecasts frequently cite a lack of confidence in other belief factors as their rationale.


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