Inflation expectations and cognitive uncertainty

This paper provides a new perspective on the formation of inflation expectations based on a sample of 1036 US residents. In our information provision experiment, the participants were provided with professional forecasts of different historical accuracy and complexity. Our novel experimental design allows us to assess the influence of cognitive uncertainty while controlling for the uncertainty associated with forecasts and priors. Consistent with cognitive uncertainty we find that more complex forecasts lead to smaller updates of inflation expectation.