Expectations Uncertainty and Household Economic Behavior
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.
We thank Jesse Davis, Jacob Sagi, and seminar participants at Imperial College, Indiana University, Oxford University, Rice University, and the University of North Carolina for helpful comments and discussion, and staff at the Federal Reserve Bank of New York for their help with the Survey of Consumer Expectations data. All remaining errors are ours. This research was supported by funding from the University of North Carolina and the Ohio State University. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research, the Federal Reserve Board, or its staff.