Affiliations: [a] Economic Alchemy LLC, New York, NY, USA. E-mail:
[email protected]
Abstract: I present evidence of systematically heterogeneous expectations, a violation of
the Rational Expectations Hypothesis. I demonstrate that the expectations of
different gender and wealth cohorts have different relative abilities to predict
inflation, interest rates, unemployment, income, stock prices, and the housing
market. There is evidence of differences in learning and cognition. Using a
cross-sectional analysis, I demonstrate that the influence of gender on housing
market expectations is robust in controlling for other demographic factors, such
as income, education, race, age, and marital status. Over the full thirty-year
sample period, as well as during the 2002–2006 housing bubble period, men were
significantly more optimistic than women in their home price expectations with
lower dispersion of expectations. The results cast doubt on the Rational
Expectations Hypothesis and complement recent findings in the emerging field of
Neuroeconomics.
