Personal experiences and expectations about aggregate outcomes

We use novel survey data to estimate how personal experiences affect household expectations about aggregate economic outcomes in housing and labor markets. We exploit variation in locally experienced house prices to show that individuals systematically extrapolate from recent locally experienced home prices when asked for their expectations about U.S. house price changes over the next year. In addition, higher volatility of locally experienced house prices causes respondents to report a wider distribution over expected future national house price movements. We find similar results for labor market expectations, where we exploit within-individual variation in labor market status to estimate the effect of own experience on national labor market expectations. Personally experiencing unemployment leads respondents to be significantly more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to proxies for how informative personal experiences are, and is more pronounced for less sophisticated individuals

Personal Experiences and Expectations about Aggregate Outcomes

We use novel survey data to estimate how personal experiences affect household expectations about aggregate economic outcomes in housing and labor markets. We exploit variation in locally experienced house prices to show that individuals systematically extrapolate from recent locally experienced home prices when asked for their expectations about US house price changes over the next year. In addition, higher volatility of locally experienced house prices causes respondents to report a wider distribution over expected future national house price movements. We find similar results for labor market expectations, where we exploit within-individual variation in labor market status to estimate the effect of own experience on national labor market expectations. Personally experiencing unemployment leads respondents to be significantly more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to proxies for how informative personal experiences are, and is more pronounced for less sophisticated individuals

How deeply held are anti-American attitudes among Pakistani youth? Evidence using experimental variation in information

This paper investigates how attitudes toward the United States are affected by the provision of information. We use an experimentally generated panel of attitudes, obtained by providing urban Pakistanis with fact-based statements describing the United States in either a positive or negative light. Anti-American sentiment is high and heterogenous in our sample at the baseline. We find that revised attitudes are, on average, significantly different from baseline attitudes, indicating that providing information had a meaningful effect on U.S. favorability. Observed revisions are a consequence of both the salience of already known information and information acquisition that leads to a convergence in attitudes across respondents with different priors. This analysis provides evidence that (i) public opinions are not purely a cultural phenomenon and are malleable, and (ii) the tendency of respondents to ignore information not aligned with their priors can be overcome. Our findings make the case for dissemination of accurate information about various aspects of the Pakistan-U.S. relationship in order to improve opinion toward the United States

The sensitivity of housing demand to financing conditions: Evidence from a survey

The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a survey in which respondents are asked for their maximum willingness to pay (WTP) for a home comparable to their current one, under different financing scenarios. We vary down payment constraints, mortgage rates, and non-housing wealth. We find that a relaxation of down payment constraints, or an exogenous increase in non-housing wealth, has large effects on WTP, especially for relatively poorer and more credit-constrained borrowers. On the other hand, changing the mortgage rate by 2 percentage points only changes WTP by about 5 percent on average. These findings have implications for theoretical models of house price determination, as well as for policy

University choice: The role of expected earnings, non-pecuniary outcomes and financial constraints

We investigate the determinants of students' university choice, with a focus on expected monetary returns, non-pecuniary factors enjoyed at school, and financial constraints, in the Pakistani context. To mitigate the identification problem concerning the separation of preferences, expectations and markets constraints, we combine rich data on individual-specific subjective expectations about labor market and non-pecuniary outcomes, with direct measures of financial constraints and students' stated school choice both with and without financial constraints. Estimates from a life-cycle model show that future earnings play a small (but statistically significant) role. However, non-pecuniary outcomes, such as school's ideology, are major determinants. Data on students' choices without financial constraints allow for the outof-sample validation of the model, which shows a strikingly good fit. Our results show that 37% of students are financially constrained in the university choice, and that implementing policies relaxing financial constraints would increase students' average lifetime subjective expected utility by 21%. From a methodological point, we find that ignoring non-pecuniary factors, uncertainty related to employment and drop-out, or direct measures of financial constraints, yields biased estimates - thereby underscoring the importance of having data on these aspects for understanding university choice in any context

Heterogeneous inflation expectations, learning, and market outcomes

Using the panel component of the Michigan Survey of Consumers, we show that individuals, in particular women and ethnic minorities, are highly heterogeneous in their expectations of inflation. We estimate a model of inflation expectations based on learning from experience that also allows for heterogeneity in both private information and updating. Our model vastly outperforms existing models of inflation expectations in explaining the heterogeneity in the data. We find that women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their private information, and are also slower to update their expectations. In addition, we show that personal income forecasts are positively related to subjective inflation expectations. During the 2000s, consumers believe inflation to be more persistent in the short term, but temporary fluctuations in inflation have less effect on income and long-term inflation expectations. Finally, we find evidence that sticky expectations and the heterogeneity of new information received by consumers generate higher mark-ups and inflation

University choice: The role of expected earnings, non-pecuniary outcomes, and financial constraints

We investigate the determinants of students' university choice, with a focus on expected monetary returns, non-pecuniary factors enjoyed at school, and financial constraints, in the Pakistani context. To mitigate the identification problem concerning the separation of preferences, expectations, and markets constraints, we combine rich data on individual-specific subjective expectations about labor market and non-pecuniary outcomes, with direct measures of financial constraints and students' stated school choice both with and without financial constraints. Estimates from a life-cycle model show that future earnings play a small (but statistically significant) role. However, non-pecuniary features, such as a school's ideology, are major determinants. Data on students' choices without financial constra ints allow for the out-of-sample validation of the model, which shows a strikingly good fit. Our results demonstrate that 37 percent of students are financially constrained in their choice of university, and that implementing policies relaxing financial constraints would increase students' average lifetime subjective expected utility by 21 percent. From a methodological stand point, we find that ignoring non-pecuniary factors, uncertainty related to employment and drop-out, or direct measures of financial constraints yields biased estimates - a result that underscores the importance of having data on these elements for understanding university choice in any context

Information heterogeneity and intended college enrollment

Despite a robust college premium, college attendance rates in the United States have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps - specifically, incomplete information about college benefits and costs - as a potential explanation for these patterns. In a nationally representative survey of U.S. household heads, we show that perceptions of college costs and benefits are severely and systematically biased: 74 percent of our respondents underestimate the true benefits of college (average earnings of a college graduate relative to a non-college worker in the population), while 77 percent report public college costs that exceed actual sticker costs. There is substantial heterogeneity in beliefs, with larger biases for the more disadvantaged groups, lower-income and non-college households. We show that these biases are problematic since they (indirectly) impact the respondents' reported intended likelihood of their (pre-college-age) child attending college. We simulate an "information intervention", and find that were individuals to be provided with the correct population distribution of college costs and returns, the intended child's college attendance would increase significantly, by about 0.2 of the standard deviation in the baseline intended likelihood. Importantly, as a result of the simulated intervention, gaps in college attendance by household income or parents' education persist but decline by 30 to 50 percent

Stereotypes and madrassas: Experimental evidence from Pakistan

Madrassas (Islamic religious seminaries) have been alleged to be responsible for fostering Islamic extremism and violence, and for indoctrinating their students in narrow worldviews. However, we know very little about the behavior of Madrassa students, and how other groups in their communities interact with them. To investigate this, we use unique experimental and survey data that we collected in Madrassas and other educational institutions in Pakistan. We randomly match male students from institutions of three distinct religious tendencies and socioeconomic background - Madrassas, Islamic Universities, and Liberal Universities - and observe their actions in several experiments of economic decision-making. First, we find a high level of trust among all groups, with students enrolled at Madrassas being the most trusting and exhibiting the highest level of unconditional other-regarding behavior. Second, within each group, we fail to find evidence of in-group bias or systematic out-group bias either in trust or tastes. These findings cast doubt on the general perception that Madrassas teach hatred and narrow worldviews. Third, we find that students of Liberal Universities underestimate the trustworthiness of Madrassa students, suggesting that an important segment of the society has mistaken stereotypes about students in religious seminaries

Bayesian social learning, conformity, and stubbornness: Evidence from the AP Top 25

The recent nonexperimental literature on social learning focuses on showing that observational learning exists, that is, individuals do indeed draw inferences by observing the actions of others. We take this literature a step further by analyzing whether individuals are Bayesian social learners. We use data from the Associated Press (AP) U.S. College Football Poll, a weekly subjective ranking of the top twenty-five teams. The voters' aggregate rankings are available each week prior to when voters have to update their individual rankings, so voters can potentially learn from their peers. We find that peer rankings: 1) are informative, as conditioning on them improves the accuracy of our estimated Bayesian posterior rankings in a nontrivial way, and 2) influence the way voters adjust their rankings, but the influence is less than the Bayesian amount. Voters' revisions are closer to Bayesian when the ranked team loses as compared to when it wins, which we attribute to losses being less ambiguous and more salient signals. We find evidence of significant voter heterogeneity, and that voters are less responsive to peer rankings after they have been on the poll a few years. We interpret the data to imply that reputation motives cause voters to 'conform,' but not enough to overcome the overall tendency to underreact to social information, that is, to be 'stubborn.