Consumer expectations: a new paradigm

Abstract

Most scholars view the expectations held by consumers to be little more than uninformed guesses. Nonetheless, research has repeatedly found a close correspondence between aggregate trends in consumer expectations with the corresponding trends in national statistics. The theory of tailored expectations has reconciled the false paradox of micro-inaccuracy and macro-accuracy by shifting the focus from national data to the conditions people actually face. Processing, interpreting, and learning from economic information are largely accomplished by non-conscious cognitive activity. The inherent social nature of economic expectations generates cascades that can result in self-fulfilling expectations and consumers deserve equal billing with business and the government as having an independent and potent impact on the macro-economy. Lastly, the lament that non-conscious cognitive activity cannot be directly observed should not impede progress toward a more robust theory of economic expectations.