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An experimental study of the nature of consumer expectations.

Bolger, Fergus (2010) 'An experimental study of the nature of consumer expectations.', Working Paper. Durham University, Durham.

Abstract

Although important both theoretically and practically, the nature of consumer economicexpectation formation has been little studied, particularly by psychologists. The mostrelevant previous research suggests that expectations are based on a heuristic that resultsin them being significantly biased. Further, relevant indicator series are poorly utilized.However, this earlier research used a task lacking in potentially important features of thereal world, and this may have impaired performance. In the current experiment,participants received a more ecologically-valid task. Although there was still evidence ofheuristic use, leading to suboptimal performance and bias, this performance wassignificantly better than anticipated from previous research, particularly regarding use ofindicator series. However, when a strong trend in the criterion series allowed accurateforecasting without consideration of indicators, they were little used. I conclude thatexpectations are formed by first extrapolating the criterion series and only if that workspoorly is other relevant information considered. Thus consumers appear to trade-offaccuracy against effort, such that more effort is expended only when some threshold ofacceptable performance fails to be reached.

Item Type:Monograph (Working Paper)
Keywords:Taxation, Endogenous fertility, Critical level utilitarianism, Population, JEL classifcation: D63 H21 J13 O40.
Full text:PDF - Published Version (277Kb)
Status:Not peer-reviewed
Publisher Web site:http://www.dur.ac.uk/business/faculty/working-papers/
Record Created:07 Dec 2012 10:36
Last Modified:16 Oct 2013 13:08

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