Expectations with Endogenous Information Acquisition: An Experimental Investigation

Andreas Fuster (1) , Ricardo Perez-Truglia (2) , Mirko Wiederholt (3) , Basit Zafar (4)

1 Swiss National Bank
2 UCLA - University of California [Los Angeles]
3 ECON - Département d'économie (Sciences Po)
4 ASU - Arizona State University [Tempe]

We use a survey experiment to generate direct evidence on how people acquire and process information. Participants can buy different information signals that could help them forecast future national home prices. We elicit their valuations and exogenously vary the cost of information. Participants put substantial value on their preferred signal and, when acquired, incorporate the signal in their beliefs. However, they disagree on which signal to buy. As a result, making information cheaper does not decrease the cross-sectional dispersion of expectations. We provide a model with costly acquisition and processing of information, which can match most of our empirical results.

Keywords: Expectations; Experiment; Housing; Information frictions; Rational inattention

Domains: Economics and Finance

Andreas Fuster, Ricardo Perez-Truglia, Mirko Wiederholt, Basit Zafar. Expectations with Endogenous Information Acquisition: An Experimental Investigation. Review of Economics and Statistics, 2022, 104 (5), pp.1059-1078. ⟨10.1162/rest_a_00994⟩. ⟨hal-03878688⟩