Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/340004 
Year of Publication: 
2026
Series/Report no.: 
SAFE Working Paper No. 475
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
Expectations are central to models of economic and financial decision-making. Yet in practice, individuals are often inattentive and, when asked, report fragile, context-dependent expectations that are only weakly linked to decisions. This raises the question to what extent they hold such expectations in the first place. Against this backdrop, we ask two questions: When people think about an economic issue, can they build on expectations they formed before? And does it matter if they cannot? We develop and validate a survey measure that distinguishes between individuals who can recall expectations formed in the past and those who must form expectations from scratch. We show that while many households have expectations about key economic variables, a large share of households do not - even among those close to decisions for which the expectation should be relevant. This matters: individuals without a previously-formed expectation (i) express expectations that are more context-dependent, (ii) update expectations more strongly but less persistently in response to new information, (iii) report expectations that are less relevant to decisions, and (iv) rely more on heuristics that do not require expectations when making economic decisions.
Subjects: 
Expectations
Belief Formation
Previously-Formed
Context-Dependence
Learning
Decision Relevance
Heuristics
JEL: 
C83
C91
D83
D84
D91
E71
G41
G53
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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