Intervention (Hidden)
The experiment runs in three blocks.
In the first section I assess characteristics of the individual. Initially participants record their age, income (household gross and net, personal gross and net), highest educational qualification, gender and race (Black, Colored, Indian, White), and province, as is standard in household surveys. In the sample recruited via prolific the demographics are not elicited directly and recorded by the provider when participants sign up to the platform. In addition, I include controls for the employment status. In particular, I am interested in whether a respondent is employed, self-employed or unemployed, and if employed, whether they are working in the private or public sector and are members of a workers union. All three additions are important due to their relevance for wage bargaining.
After characteristics are recorded, baseline beliefs about inflation, unemployment and GDP growth are elicited as point forecasts for 12 months ahead. All participants are given a definitions of the three variables. (“Inflation is the rate at which the overall prices for goods and services change over time.”; “The unemployment rate is the percentage of adults who want to work and are capable of working but do not have a job and are looking for one.”; “The GDP growth rate measures by how much a country's economy is getting bigger, i.e. is producing more goods and services, in a given year.”). Prior beliefs are used as reference points. Respondents receive no numerical anchor before their prior beliefs are elicited. Finally, I elicit expected behaviors by inquiring the percentage chance of the respondent or other members of their household to ask for a higher wage, increase hours worked, reduce consumption of goods and services, use up savings, sell larger items or take a loan should the scenario realize.
The third step is the presentations of hypothetical scenarios. Participants are randomly allocated to one of twelve treatment arms, which will be labeled up_1 - up_6 and down_1- down_6. Up indicates the upper arm, in which inflation expectations are increased and down the lower arm, in which reference expectations are decreased. First, participants are asked what they believe will be the most likely reason inflation would be higher/lower than their initial forecast. This type of "big picture" question can capture first order considerations. Then, each participant in up_1 - up_6 randomly draws a factor Y_u ~ U((1,2]) and equivalently each participant in down_1- down_6 randomly draws a factor Y_d ~ U([0,1)). Hence for arms in up the scenario strictly increases expectations by no more than 100% of the initial value while for groups arms in down the scenario strictly reduces them by no more than 100% of the initial value.Due to the asymmetric nature of the intervention around zero, exceptions must be made for those that expect deflation. Individuals in down with deflationary expectations get assigned a Y randomly drawn from Y_d ~ U((1,2]) and in reverse those in up randomly draw from Y_u ~ U([0,1)). Under this correction we maintain our interpretation of the groups as “decreasing” and “increasing” expectations respectively. I expect very few observations with deflationary expectations for which this correction would apply.
The factors are then used in three hypothetical scenarios.
-------------------------
You said that you believe inflation in South Africa in the next 12 months will be [Prior]%. Assume now that instead, inflation in South Africa over the next 12 months will be [Y_u/d x Prior]\%$.
Scenario 1 (Open) Assume that the cause of this difference is [Reason_u/d].
Scenario 2: (Supply) Assume that the cause of this difference is a(n) decrease/increase in the supply of goods and services. In other words, by firms producing less/more than before.
Scenario 3: (Demand) Assume that the cause of this difference is a(n) increase/decrease in the demand for goods and services. In other words, by households, firms and the government consuming and investing more/less than before.
I will ask you now about your beliefs under such a scenario.
------------------------
Each participant answers posteriors for each scenario. Posteriors are the same questions as asked as prior. The order of the scenarios is determined by the treatment group.