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American Economic Review Vol. 116 No. 8 2026

Uncertainty and Change: Survey Evidence of Firms' Subjective Beliefs

Rüdiger Bachmann1; Kai Carstensen2; Stefan Lautenbacher3; Manuel Menkhoff4; Martin Schneider5

1 University of Michigan, CEPR, CESifo, ifo Institute, DIW, and IZA (email: ) · 2 Kiel University, CESifo, and ifo Institute (email: ) · 3 Formerly ifo Institute and LMU Munich (email: ) · 4 University of Copenhagen, ifo Institute, CESifo, and CEBI (email: ) · 5 Stanford University, CEPR, and NBER (email: )

Abstract

This paper studies how managers plan under uncertainty. In a new panel survey of German manufacturing firms, we observe both forecasts of sales growth and a quantitative measure of subjective uncertainty. We show that subjective uncertainty reflects change experienced by firms: It is high when growth is either unusually low or unusually high. Subjective uncertainty is more than conditional volatility; while more volatile firms are typically more uncertain, experienced change alone increases uncertainty, consistent with a model of learning. Uncertainty over our sample is mostly idiosyncratic but varies substantially over time and leads managers to plan lower employment and prices.

DOI
10.1257/aer.20240056
Volume
116
Issue
8
Pages
2806-2849
Language
en
Sources
crossref

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