Inflation expectations elicited in surveys have been found to exhibit large dispersion across individuals. Although several explanations have been proposed, none fully explain this puzzle. We explore in this paper a new behavioral factor: social comparison. Using original survey data, we find that respondents who feel they are falling behind compared to their peers report significantly and substantially higher inflation expectations. We argue that this result is consistent with an experience based belief formation model in which those unable to “keep up with the Joneses” overweight the high prices of “aspiration” goods they are unable to purchase.
The expected price of keeping up with the Joneses / O. Armantier, A. Filippin, M. Neubauer, L. Nunziata. - In: JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION. - ISSN 0167-2681. - Bobina. - (2020), pp. 1-18. [Epub ahead of print] [10.1016/j.jebo.2020.07.022]
The expected price of keeping up with the Joneses
A. FilippinSecondo
;L. NunziataUltimo
2020
Abstract
Inflation expectations elicited in surveys have been found to exhibit large dispersion across individuals. Although several explanations have been proposed, none fully explain this puzzle. We explore in this paper a new behavioral factor: social comparison. Using original survey data, we find that respondents who feel they are falling behind compared to their peers report significantly and substantially higher inflation expectations. We argue that this result is consistent with an experience based belief formation model in which those unable to “keep up with the Joneses” overweight the high prices of “aspiration” goods they are unable to purchase.File | Dimensione | Formato | |
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