Expectations of inflation: The biasing effect of thoughts about specific prices

National surveys follow consumers’ expectations of future inflation, because these may directly affect the economic choices they make, indirectly affect macro-economic outcomes, and are considered in monetary policy. Yet, relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large heterogeneity between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider specific price changes when forming their inflation expectations report more extreme and disagreeing inflation expectations due to focusing on specific extreme price changes. In Study 1, participants who were instructed to recall any price changes or to recall the largest price changes both thought of items for which price changes were perceived to have been extreme. Moreover, they reported more extreme year-ahead inflation expectations and showed more disagreement than did a third group that had been asked to recall the average change in price changes. Study 2 asked participants to report their year-ahead expectations of inflation, without first prompting them to recall specific price changes. Half of participants nevertheless thought of specific prices when generating their inflation expectations. Those who thought of specific prices reported more extreme and more disagreeing inflation expectations, because they were biased towards various items associated with more extreme perceived price changes. Our findings provide new insights into expectation formation processes and have implications for the design of survey-based measures of inflation.     

Is a good deal always fair? Examining the concepts of transaction value and price fairness

Previous research has shown that if consumers are aware that they are paying more than another customer for a similar transaction, then they may perceive the price to be unfair. A concept closely related to fairness is transaction value, defined as consumers’ perceptions of the psychological satisfaction or pleasure from taking advantage of a price deal. In this research, we conceptualize that although consumers’ perceptions of price fairness and transaction value share many similarities, nevertheless there are also important differences. Using three studies, we empirically examine these differences. We show that although a “bad deal” is typically perceived to be an unfair price, a “good deal” is not necessarily perceived to be the fairest price.     

Perceived inflation and expected future prices in different currencies

Five experiments were conducted to investigate whether perceived inflation and expected future prices are influenced by the nominal representation of increases in product prices in different currencies. In contrast to previous research demonstrating overestimates of the perceived inflation of product prices after the transition of the domestic German Mark to Euro [Greitemeyer, T., Schultz-Hardt, S., Traut-Mattausch, E., & Frey, D. (2005). The influence of price trend expectations on price trend perceptions: Why the Euro seems to make life more expensive? Journal of Economic Psychology, 26, 541–548; Traut-Mattausch, E., Schultz-Hardt, S., Greitemeyer, T., & Frey, D. (2004). Expectancy confirmation in spite of disconfirming evidence: The case of price increases due to the introduction of the Euro. European Journal of Social Psychology, 34, 739–760], the price increases were of normal magnitude (5% and 8%) and a larger set of prices was used including small weekly expenses, prices of durables, and rent. All experiments were conducted in Sweden (not member of the European monetary union) employing undergraduates who volunteered to participate in class settings without any financial compensation. The price increases were expressed in the same currency, either actual currencies (Swedish Crowns or Euros) or fictitious currencies with different units. In general inflation was underestimated, to a larger extent when the currency or the product prices were unfamiliar than familiar. It was also shown that product-specific price changes made it difficult to perceive inflationary price increases. Only marginal effects of currency unit were observed.     

Economic valuation of coastal water quality and protest responses: A case study in Mitilini, Greece

The aim of this study was to evaluate environmental benefits resulting from the construction of a Sewage Treatment Plant (STP) in Mitilini, Greece. The main benefits identified were the improvement of the coastal water quality and subsequent impacts on citizens’ activities. The valuation was conducted using the Contingent Valuation Method (CVM) through the elicitation of individuals’ willingness to pay (WTP). Due to the significant amount of zero and protest responses, different measurements of mean WTP were calculated and the need for further research on social factors which influence individuals’ valuation is emphasized.     

Disentangling the housing satisfaction puzzle: Does homeownership really matter?

There is a general consensus that homeownership has beneficial effects for both individuals and society in many outcomes. However, research regarding the effect of homeownership on individuals’ subjective well-being remains inconclusive. In this paper, for the first time, we provide empirical evidence for the link between homeownership and housing satisfaction using panel data. We use the eight waves of the European Community Household Panel (ECHP) covering the period 1994–2001. We observe that renters who become homeowners not only experience a significant increase in housing satisfaction, but also after changing their tenure status, they obtain a different utility from the same housing context. This evidence might provide support to the hypothesis that a share of the differences in the perceived utility derived from housing can be attributed to (un)fulfilled expectations or aspirations regarding homeownership.     

How is perceived inflation related to actual price changes in the European Union?

We analyze for which types of consumer expenditures the rate of price change influences consumer perception of inflation. We use both harmonized consumer price indices (HCPI) and series of perceived inflation from Eurostat in the 1996–2006 time period for 13 European countries. After removing substantial autocorrelation, we found a significant effect of the rate of overall price change on perceived inflation in the EU as a whole and a number of individual countries, supporting Fechner’s law. However, in different countries different consumer item categories were correlated with perceived inflation.     

The role and relevance of domain knowledge, perceptions of planning importance, and risk tolerance in predicting savings intentions

The need for individuals to increase retirement savings has been widely promoted, yet our understanding of the motivations of individuals to save at a higher rate remains sparse. This paper reports the findings of a survey of 2300 retirement savings fund members and their motivations to contribute more to savings and to actively manage their investment strategy. Utilising the theory of planned behavior, the study reveals respondent’s self-reported attitudes, subjective norms and perceptions of behavioral control account for a high proportion of the variance in behavioral intention. Contrary to expectations, the study finds that respondent’s risk tolerance adds little to the prediction of behavioral intention. By contrast, perceptions of planning importance and self-assessed planning preparedness (domain knowledge) are found to exert powerful indirect influences on behavioral intentions via the perceived behavioral control construct. This novel finding confirms the relevance of planning constructs and financial literacy to an understanding of retirement savings behavior, and establishes a need to improve levels of financial literacy in society.     

Bayesian utilitarianism and probability homogeneity

This paper investigates, within the axiomatic framework of Jeffrey-Bolker decision theory, two kinds of conditions and the relation between them: (1) The Utilitarian condition that social rankings of prospects be representable by an expected utility function that is a weighted sum of the expected utility functions representing individual rankings; and (2) Homogeneity conditions on the probabilities and preferences of individuals. In particular, we show that identity of individuals’ probabilities is necessary and sufficient for the Utilitarian condition to hold and that the homogeneity of individuals’ probabilities can be derived from a Pareto condition on the relation between individual and social rankings, provided that these rankings are separable in a particular sense.This paper has considerably benefited from comments by John Broome, Isaac Levi and an anonymous referee. Special thanks to Philippe Mongin who provided encouragement, help and careful criticism throughout the development of this paper.     

A measure of community members’ perceptions of the impacts of research partnerships in health and social services

Currently, there are no psychometrically sound outcome measures by which to assess the impacts of research partnerships. This article describes the development of a 33-item, survey questionnaire measuring community members’ perceptions of the impact of research partnerships addressing health or social issues. The Community Impacts of Research Oriented Partnerships (CIROP) was developed using information from the literatures on health promotion, community development, research utilization, and community-based participatory research, and from focus groups involving 29 key informants. Data from 174 community members were used to determine the factor structure, internal consistency, and test–retest reliability of the four CIROP scales, and to provide evidence of construct validity. The CIROP informs research partnerships about the extent of their impact in the areas of Personal Knowledge Development, Personal Research Skill Development, Organizational/Group Access To and Use of Information, and Community and Organizational Development, allowing them to demonstrate accountability to funding bodies. As well, the CIROP can be used as a research tool to assess the effectiveness of knowledge sharing approaches, determine the most influential activities of research partnerships, and determine structural characteristics of partnerships associated with various types of impact. The CIROP provides a better understanding of community members’ perspectives and expectations of research partnerships, with important implications for knowledge transfer and uptake.     

Terror and trade of individual investors

A great number of psychological studies document the influence of emotions on individuals’ decision-making processes. This paper contributes to this literature by analyzing the possible impact of terrorism on financial trade by individual investors. Using account data for over 3000 households obtained from a large Israeli bank, we look into reactions of common stock investments to terrorist incidents in the years 1998–2002. The empirical analysis indicates that terror has a significant adverse effect on actual trade, possibly limiting the scope of risk-sharing available through traded securities. Several psychological explanations for investors’ reluctance to trade are provided. Amongst them are the increase in public fear (resulting in pessimistic risk estimates and risk averse choices); the sense of ambiguity caused by terror; repercussions of anxiety and depression disorders; a desire to avoid future regret. Our results add to the recent literature documenting the harmful effects terrorist acts have on various facets of the economy.     

Crossing divides: Ethnicity and rurality

This paper draws on research with people from African, Caribbean and Asian backgrounds regarding perceptions and use of the English countryside. I explore the complex ways in which the category ‘rural’ was constructed as both essentialised and relational: how the countryside was understood most definitely as ‘not-city’ but also, at the same time, the English countryside was conceived as part of a range of networks: one site in a web of ‘nature places’ across the country, as well as one rural in an international chain of rurals – specifically via embodied and emotional connections with ‘nature’. I argue that alongside sensed/sensual embodiment (the non-representational intuitive work of the body), we need also to consider reflective embodiment as a desire to space/place in order to address the structural socio-spatial exclusions endemic in (rural) England and how they are challenged. I suggest that a more progressive conceptualisation of rurality – a ‘transrural’ open to issues of mobility and desire – can help us disrupt dominant notions of rural England as only an exclusionary white space, and reposition it as a site within multicultural, multiethnic, transnational and mobile social Imaginaries.     

State implementation of TANF: where do we stand in 2001?

To provide a context for understanding the evaluations discussed in this volume, this paper gives an overview of the federal TANF legislation and describes features of state TANF programs that are particularly relevant for appreciating the need for evaluation and for interpreting evaluations. These features include the states’ policies regarding work by applicants and recipients, policies to divert applicants from welfare, and rules designed to change individuals’ behavior regarding childbearing, childrearing, and marriage. Because the implementation of state policies depends on practices at the front lines of the welfare system, some features of the ‘culture’ of local welfare offices are also examined.     

Public expenditure: Perceptions and preferences

Public preferences for government expenditure form an important part of the literature in public sector economics. However, in the academic literature these preferences have been largely considered as “given”. Exceptions to this are where public preferences expressed referenda (e.g. in California) can directly influence tax revenue and public expenditure levels. The present study follows an earlier one in using a questionnaire to ask individuals directly about their perceptions of and preferences for public spending. Replies from 50 respondents were analysed using multiple regression and analysis of variance techniques in order to ascertain whether public expenditure perceptions and preferences showed consistent and predictable patterns among young individuals with little or no experience of paying tax. The results showed that both perceptions and preferences for a series of seven macro-expenditure items were significantly different from one another and broadly predictable from individuals' self reported positions on ‘left/right’ scales. It is concluded that views about public expenditure may often form part of integrated attitudes with both perceptual and preferential components.     

Policy Disciplining Effect of Capital Account Openness in India

In this paper, the policy disciplining effect of capital account openness in India is examined by examining the impact of capital account openness on inflation and fiscal deficit. Multivariate modeling, which includes other relevant variables identified in the literature, is used for the analysis. Our results show capital account openness has a strong disciplining effect on inflation whereas it has no significant effect on fiscal deficit. In the case of fiscal deficit, trade openness and number of government changes only are the significant determinants. The moves of the RBI tend to reaffirm the disciplinary effect of capital account openness. In the meantime, since the mid 1990s, RBI kept a strict vigil over inflation and inflation expectations in the context of a more open capital account. One major reason for the problem concerning inflation expectation by RBI is the threat of capital outflow in the face of loose monetary policy and high inflation.     

Confidence and action: a comment on Barbalet

John Maynard Keynes is widely recognized as one of the greatest economists of the 20^th century. For a growing number of his interpreters, Keynes’s emphasis on uncertainty and on the psychological aspects of expectations about the future are among his most significant contributions. References to Keynes’s notions of confidence and animal spirits, for example, have increasingly appeared in the economic literature. In sociology, a stimulating recent book by Jack Barbalet (1998) tries to improve our understanding of social structure by redefining the role of emotions in social life. Barbalet also wants to correct what he understands as an insufficient attention to time on the part of social theorists. This double objective leads him to deal with confidence and some of Keynes’s ideas. His book represents a most valuable contribution to the sociology of emotions, time and uncertainty.The purpose of this paper is to comment on Barbalet’s discussion of confidence and the theory of action, and to contrast it with an alternative approach. Both Barbalet’s position and the alternative presented here involve an interpretation of Keynes’s theory of economic behavior under uncertainty, but go beyond doctrinal-historical issues and formulate original theoretical propositions. The present paper is intended as a positive contribution to the interaction between economists and sociologists interested in these issues. Barbalet’s book already represents an important step in this direction, for his social analysis considers, and incorporates insights from, the work of several economists, in addition to conveying well-founded criticisms of standard economic theory.As far as Barbalet’s interpretation of Keynes is concerned, the paper points out Keynes’s ambiguity regarding important issues and identifies interesting points of Keynes’s theory that Barbalet does not discuss or emphasize. The paper produces evidence against Barbalet’s equation of confidence and animal spirits in Keynes. It also shows that Keynes distinguished between expectations and confidence, a distinction not explicitly made by Barbalet. In addition, the paper enriches Barbalet’s discussion of Keynes’s monetary theory by relating uncertainty to the precautionary motive for liquidity preference.Moving from the history of thought to theory, the paper proposes an alternative analysis of confidence and action, and contrasts it with Barbalet’s approach. This alternative approach distinguishes between confidence and expectations, and suggests that these two elements are ultimately determined by three factors: knowledge, animal spirits (redefined as an optimistic disposition to face uncertainty) and creativity. The first two factors are seen as determinants of confidence through their influence on what is called uncertainty perception and willingness to face uncertainty (or uncertainty aversion). The paper is organized as follows. It begins by summarizing some aspects of Barbalet’s views on confidence, in section 1. It proceeds, in section 2, by presenting Barbalet’s interpretation of Keynes and discussing it. The next step is to present, in section 3, another theory of action in which confidence plays a crucial role. This alternative approach, which uses Keynes’s insights but goes beyond his work, is then contrasted with Barbalet’s views.     

Economic convergence and life satisfaction in the European Union

The issue of convergence or divergence in the European Union (EU) is usually viewed from a macroeconomic perspective, using indicators such as the income per head, the unemployment rate and the inflation rate. Little attention has been paid to the possibility of an associated convergence in ‘well-being’ across countries. Since recent literature has shown that subjective well-being (life satisfaction, ‘happiness’) is significantly affected by macroeconomic variables, it is natural to ask not only whether or not subjective well-being converges, but also, whether, how and to what extent this process is linked to macroeconomic convergence. In this paper we use self-rated life satisfaction elicited in large scale surveys to address these questions. We find evidence of convergence of life satisfaction across the member states of the EU, which can be attributed to a considerable extent to the convergence in macroeconomic conditions. Among the various macroeconomic indicators, the convergence in inflation rates has played a major role for the convergence in life satisfaction.     

A simple theory of ‘meso’. On the co-evolution of institutions and platform size—With an application to varieties of capitalism and ‘medium-sized’ countries

This paper deals with institutional emergence in the well-known ‘evolution of cooperation’ framework and focuses on its size dimension. It is argued that some ‘meso’ (rather than ‘macro’) level (to be numerically determined) is the proper level of cultural emergence, diffusion, and retention. Also Schumpeterian economists (K. Dopfer et al.) have discussed institutions as ‘meso’ phenomena, and Schelling, Axelrod, Arthur, Lindgren, and many others have dealt with ‘critical masses’ of coordinated agents, including related segregations of populations. However, the process and logic of emergent group size has rarely been explicitly explored so far. In this paper, ‘meso’ will be explained, in an evolutionary and game–theoretic frame and a population perspective, in terms of a cooperating group smaller than the whole population involved. Mechanisms such as memory, monitoring, reputation chains, and active partner selection will loosen the total connectivity of the deterministic ‘single-shot’ benchmark and thus allow for emergent ‘meso’-sized arenas, while expectations to meet a cooperative partner next round remain sufficiently high. Applications of ‘meso-nomia’ include the deep structure of ‘general trust’ and the surprisingly high macro-economic and macro-social performance in ‘small’ and ‘well-networked’ countries which helps to explain persistent ‘varieties of capitalism’. A strategy for empirical application of the theoretical approach and some first empirical indications of its relevance are presented.     

Just-in-space: Certified rural products, labor of quality, and regulatory spaces

Since the mid-1990s, the number and diversity of ‘quality-certified’ products has increased dramatically. This article examines labor practices and regulatory spaces within 3rd party quality certification and suggests that this distinct configuration be termed ‘just-in-space’ production. A privileging of space derives, on the one hand, from the character of qualities certified. ‘Extrinsic’ qualities, such as biodiversity conservation or fair-trade labor practices, may only be introduced into the commodity through monitoring of labor at the point of production and along the commodity chain to retailer venues. This monitoring, accomplished via inspections and document production on a track that parallels the commodity movement, occurs within a semi-public space and results in an uneasy tension between a social interest in open inspections of ecological and socially-just production and retailer interest in controlling certification information about ‘green’ products. At the same time, transnational institutional regulation of certification (e.g., ISO), together with popular support for quality certification, limits the power of retailers and activists to alter certification practices and sustains the semi-public character of this space. Using a literature review and research on certified organic coffee, this paper examines practical and theoretical implications of just-in-space production, and concludes that while this configuration facilitates public action in support of social-justice and environmental conservation, it is also susceptible to manipulation by large retail firms that chose to evade 3rd party certification by setting up private certifications.     

The differential impact of inflation on key societal interest groups and public policy implications

An inflation problem exists when there is a perceived negative imbalance in the input-output position of a particular group. In this article the inflation problem is disaggregated by type of input-output imbalance, by degree of severity of the imbalance, and by vested interest group. The disaggregated model captures the inverse relationship between price changes and the inflation problem for subgroups, and the duality of the impact of price changes on particular subgroups. The empirical specification of the model makes explicit the diverse and often conflicting impacts of inflation on various subgroups. It is argued that macroeconomic policy makers often implement the wrong type of anti-inflation measures at the wrong time. The proposed input-output model provides a rationale and a framework for implementing microeconomic, targeted policies. With targeted policies, we can attempt to remedy particular inflationary problems without adversely affecting prosperous components of the economy.     

Tax evasion, tax morale and policy maker's effectiveness

This paper aims to show that aggregate tax evasion may be largely explained by tax morale and that tax morale is dependent on the taxpayers’ intrinsic attitudes to honesty and social stigma. The theoretical hypothesis is that these attitudes are influenced by the taxpayers’ perceptions of the size of tax evasion as well as by their perceptions of the policy maker's effectiveness in exercising control over the relevant macroeconomic variables and safeguarding the interests of citizens. Applying Gordon's [Gordon, J.P.F., 1989. Individual morality and reputation costs as deterrents to tax evasion. European Economic Review 33(4), 797–805] framework, a dynamic model of aggregate tax evasion is proposed whereby multiple equilibria may emerge. Econometric analysis on Latin American countries supports the assumptions made in the model.