Household income expectations: The role of unexpected income changes and aggregate conditions

Bucciol, Alessandro, Easaw, Joshy ORCID: https://orcid.org/0000-0003-3476-4300 and Trucchi, Serena ORCID: https://orcid.org/0000-0002-1932-7201 2025. Household income expectations: The role of unexpected income changes and aggregate conditions. Journal of Economic Behavior & Organization 236 , 107064. 10.1016/j.jebo.2025.107064

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Abstract

We analyse how unexpected income changes and aggregate conditions influence income expectations, their uncertainty, and expectation errors. We use a uniquely rich longitudinal Dutch survey collecting detailed information on the distribution of household income expectations. Our results show that unexpected income changes, much more than aggregate conditions, induce a revision in income expectations across the entire spectrum of the expected income distribution, consistent with extrapolative behaviour. We also document that unexpected income changes increase the uncertainty about future income. Our results provide some evidence of over-reaction, particularly to negative unexpected income changes and among high-income individuals. These effects differ based on an individual’s position in the income distribution, which may be attributed to differences in income dynamics, role of insurance mechanisms, and varying levels of awareness about how unexpected income changes and aggregate conditions impact household finances.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Publisher:	Elsevier
ISSN:	0167-2681
Date of First Compliant Deposit:	16 June 2025
Date of Acceptance:	11 May 2025
Last Modified:	16 Jun 2025 09:15
URI:	https://orca.cardiff.ac.uk/id/eprint/178996

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