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A0389
Title: On irrationality or risk aversion: A sticky expectations model for households' unemployment predictions Authors:  Luca Gerotto - Università Cattolica del Sacro Cuore (Italy) [presenting]
Paolo Pellizzari - Ca Foscari University of Venice (Italy)
Abstract: A novel theoretical framework is developed that combines a staggered update of information with risk-aversion of the individuals. The combination of these two features leads a risk-averse individual, conscious of having outdated information, to rationally under(over)-estimate a variable in such a way to hedge against a costly over(under)-estimation. Model parameters are calibrated on empirical data: specifically, the focus is on unemployment expectations of Italian households, from the Consumer Confidence Survey run by \textit{ISTAT} on Italian households. The findings suggest that the heterogeneity in the frequency of update of information is the main driver of the different aggregate bias for different demographic groups. This frequency is increasing in the education level, is higher for men than for women and is higher for working people (in particular the self-employed) than for not-working individuals. It is also lower in the Southern regions of Italy and is higher for young agents than for retired people. This result is important for policy-making since it allows to identify the groups which are more in need of easy access to information as well as financial (and economic) education.