ABSTRACT Using novel survey data, we document that individuals extrapolate from recent personal experiences when forming expectations about aggregate economic outcomes. Recent locally experienced house price movements affect expectations about future U.S. house price changes and higher experienced house price volatility causes respondents to report a wider distribution over expected U.S. house price movements. When we exploit within‐individual variation in employment status, we find that individuals who personally experience unemployment become more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to how informative personal experiences are, is inconsistent with risk adjustment, and is more pronounced for less sophisticated individuals.

We investigate the determinants of students’ university choice in Pakistan, with a focus on monetary returns, nonpecuniary factors enjoyed at school, and financial constraints. To mitigate the identification problem concerning the separation of preferences, expectations, and market constraints, we use rich data on subjective expectations, with direct measures of financial constraints, to estimate a life-cycle model of school choice jointly with school-specific expectations of dropping out. We find that labor market prospects play a small role. Instead, nonpecuniary outcomes, such as the school’s ideology, are the major determinants. Policy simulations suggest that relaxing financial constraints would have large welfare gains.

Abstract Home price expectations are believed to play an important role in housing dynamics, yet we have limited understanding of how they are formed and how they affect behaviour. Using a unique “information experiment” embedded in an online survey, this article investigates how consumers’ home price expectations respond to past home price growth, and how they impact investment decisions. After eliciting respondents’ priors about past and future local home price changes, we present a random subset of them with factual information about past (one- or five-year) changes, and then re-elicit expectations. This unique “panel” data allows us to identify causal effects of the information, and provides insights on the expectation formation process. We find that, on average, year-ahead home price expectations are revised in a way consistent with short-term momentum in home price growth, though respondents tend to underpredict the strength of momentum. Revisions of longer-term expectations show that respondents do not expect the empirically-occurring mean reversion in home price growth. These patterns are in line with recent behavioural models of housing cycles. Finally, we show that home price expectations causally affect investment decisions in a portfolio choice experiment embedded in the survey.

We use data from Denmark, Germany, Norway, the United Kingdom, and the United States to document the degree of educational assortative mating, how it evolves over time, and the extent to which it differs between countries. This descriptive analysis motivates and guides a decomposition analysis in which we quantify the contribution of various factors to the distribution of household income. We find that assortative mating accounts for a nonnegligible part of the cross-sectional inequality in household income in each country. However, changes in assortative mating over time barely move the time trends in household income inequality.