NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Expectations with Endogenous Information Acquisition: An Experimental Investigation

Andreas Fuster, Ricardo Perez-Truglia, Mirko Wiederholt, Basit Zafar

NBER Working Paper No. 24767
Issued in June 2018, Revised in December 2019
NBER Program(s):Asset Pricing Program, Monetary Economics Program

Information frictions play an important role in many theories of expectation formation. We use a survey experiment to generate direct evidence on how people select, acquire and process information. Participants can buy different information signals that could help them forecast future national home prices. We elicit their willingness to pay for information, and introduce exogenous variation in the cost of information. We find that participants put substantial value on their preferred signal and, when acquired, incorporate the signal in their beliefs. However, they disagree on which signal to buy. As a result, making information cheaper does not decrease the cross-sectional dispersion of expectations. We further document that numeracy and the revealed “taste” for accurate expectations are important correlates of heterogeneity in all stages of the process. We provide a model with costly acquisition and processing of information, which can match most of our empirical results.

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Document Object Identifier (DOI): 10.3386/w24767

 
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