Pei Kuang (University of Macau) - Belief Disagreement, Instability, and Uncertainty Under Stochastic Recall

Research seminars

Research Seminar - Pei Kuang (University of Macau) - Belief Disagreement, Instability, and Uncertainty Under Stochastic Recall

Abstract
Using preregistered field studies, we show that even when individuals observe identical information, recall is highly heterogeneous across people and varies within the same person over time. Beliefs closely track recalled information and change even in the absence of new signals. Motivated by these findings, we develop a parsimonious model of stochastic recall in which agents store all observed signals but recall each past signal only probabilistically when forming beliefs, while updating optimally conditional on what they remember. This single friction generates cross-sectional disagreement, within-person belief instability, and heterogeneity in subjective uncertainty among ex ante identical individuals. The model yields sharp predictions for how disagreement, instability, and uncertainty vary with informational ambivalence, recall probability, and contextual cues. Large-scale preregistered experiments support these predictions, and survey evidence on macroeconomic and financial expectations is consistent with the model’s implications. Our results identify stochastic recall as a foundational informational friction in expectation formation.

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