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May 30, 2019

Can ordinary consumers forecast future trends in inflation, unemployment, or GDP?

By Richard T Curtin

Conventional theories hold that consumers’ expectations are generally biased and their behaviors passively reflect other economic developments, while Curtin’s theory, which is based on data from the United States and the European Union, finds that the expectations of consumers have an impact on the economy that is independent of other economic forces. Expectations, rather than being uninformed, are based on actual lived experience within the marketplace. Curtin also finds that humans have an innate ability to respond to ambiguous information, which allows their economic expectations to turn negative just when the economy is at its peak, and turn positive just when the economy is at the depths of a downturn. He shows how his new paradigm can explain what were once considered anomalies in why, how, and when expectations are formed. The new paradigm also provides insights about wording and response categories used in worldwide consumer expectation surveys.