For decades, households' subjective expectations elicited via surveys have been
considered meaningless because they often differ substantially from the forecasts of …

We present the case for the centrality of overreaction in expectations for addressing
important challenges in finance and macroeconomics. First, non-rational expectations by …

The stock market is volatile, as is aggregate economic activity, and the two are connected. At
least since Burns and Mitchell (1938), we know that measures of investment and production …

Asset prices reflect investors' subjective beliefs about future cash flows and prices. In this
chapter, we review recent research on the formation of these beliefs and their role in asset …

This paper incorporates diagnostic expectations into a general equilibrium macroeconomic
model with a financial intermediary sector. Diagnostic expectations are a forward-looking …

We incorporate diagnostic expectations into a workhorse neoclassical business cycle model
with heterogeneous firms and risky debt. A realistic degree of diagnostic overreaction …

We construct an index of long-term expected earnings growth for S&P 500 firms and show
that it has remarkable power to jointly predict future errors in expectations and stock returns …

In a canonical intertemporal consumption model, future consumption mistakes (in response
to saving changes) lead to higher current marginal propensities to consume (MPCs). These …

We develop a novel bounded rationality model of imperfect reasoning as the interaction
between automatic (System 1) and analytical (System 2) thinking. In doing so, we formalize …

We develop a method of solving rational expectations models with dispersed information
and dynamic strategic complementarities. In these types of models, the equilibrium outcome …