Michael Weber - Chicago Booth School of Business

Memory and Beliefs: Evidence from the Field

Abstract

We propose a unique setting to test in the field a set of predictions on the role of memory in the recall of economic signals and the formation of subjective economic expectations, which earlier laboratory research has documented. Our setting includes, for a large and representative sample of US households, detailed information on the prices and quantities of goods purchased over a calendar year paired with survey information on economic perceptions and expectations. First, we find descriptive evidence consistent with the properties of memory databases (collections of price signals agents observe in their daily lives), whereby agents who observe more price changes are more likely to observe zero price changes and smaller prices changes in absolute value. Consistent with the notion of selective recall, we find that agents who observe larger price changes perceive and expect higher inflation. Moreover, we document evidence consistent with the two forms of interference the cognitive psychology literature proposes---proactive interference, whereby agents mistakenly recall older prices and hence lower prices than they actually paid, and retroactive interference, whereby agents are less likely to use the price changes they observe when other sources of information about inflation are salient to them.

Additional information:

  • Speaker: Michael Weber
  • Time: Wednesday, 07.09.2022, 14:45 - 16:00
  • Location: Faculty Lounge, Room 0.036
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  • Organizer: Finance Group
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