Abstract We study how people’s beliefs about the economy covary with household-level events, utilizing a unique link between Danish administrative data and a large-scale survey of consumer expectations. We find that compared to actual inflation, people’s inflation forecasts covary much more strongly (and negatively) with both recently realized household income changes and measures of expected future household income changes. We formally establish that these findings are stark deviations from the Bayesian rational expectations benchmark. Similar results hold for perceptions of past inflation (“backcasts” ), suggesting that imperfect recall is a key mechanism for biased forecasts. Building on this, a series of additional tests, some of which utilize data on adverse health events, suggests that the forecast biases are at least partly due to affect-cued recall. That is, negative (positive) household-level events cue negative (positive) recollections, which lead to pessimistic (optimistic) forecasts.

Public recognition is frequently used to motivate desirable behavior, yet its welfare effects—such as costs of shame or gains from pride— are rarely measured. We develop a portable empirical methodology for measuring and monetizing social image utility, and we deploy it in experiments on exercise and charitable behavior. In all experiments, public recognition motivates desirable behavior but creates highly unequal image payoffs. High-performing individuals enjoy significant utility gains, while low-performing individuals incur significant utility losses. We estimate structural models of social signaling, and we use the models to explore the social efficiency of public recognition policies. (JEL C93, D64, D82, D91)