Theresa Kuchler

Personal Experiences and Expectations about Aggregate Outcomes

We use novel survey panel 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 over the last decades to show that individuals systematically extrapolate from recent personally experienced home prices when asked for their expectations about US house price development in 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. Extrapolation from personal experiences is more pronounced for less sophisticated individuals for both housing and unemployment expectations. Our results have implications for the modeling of expectations.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.

Sticking to Your Plan: Empirical Evidence on the Role of Present Bias for Credit Card Paydown

I use detailed data from an online financial management service to analyze the extent to which short-run impatience can explain why people hold expensive credit card balances. I first measure the sensitivity of consumption spending to paycheck receipt for each user and argue that it provides a proxy for short-run impatience. To distinguish between consumers who are aware (sophisticated) and unaware (naive) of their future impatience, I exploit the fact that the sensitivity to paycheck receipt should vary with available resources for sophisticated agents. I then relate the characteristics of each per- son’s consumption pattern to his planned and actual debt repayment behavior. Consistent with theory, planned paydown is significantly more predictive of actual paydown for sophisticated than for naive agents. In addition, higher measured impatience leads to lower debt paydown for sophisticated agents, whereas naive agents do not reduce their credit card balances substantially, irrespective of their level of impatience. These findings are inconsistent with several alternative explanations considered, such as credit constraints, and sup- port the view that short-run impatience and sophistication play a substantial role in explaining patterns of success and failure in debt paydown.