The Inflation Gamble

To identify the impact of inflation on preference for lotteries, we will randomly assign participants into one of three conditions at the beginning of the experiment: (i) high realized inflation or (ii) high expected inflation, or (iii) neutral inflation conditions. Individuals in the high realized inflation group are provided with a narrative that indicates that inflation was abnormally high over the past month. Individuals in the high expected inflation group read a narrative that indicates inflation is expected to be abnormally high over the next month. Individuals in the neutral economic conditions group are provided with a narrative that indicates that prices are changing at normal levels.

To assess whether the inflation narratives effectively raises the perception of realized (expected) inflation among participants randomly assigned to the condition, we will ask all participants to indicate their beliefs regarding inflation over the past (next) month. Responses will be coded on a three-point scale: 1 (Decrease), 2 (Neutral), or 3 (Increase). We expect that individuals in the high realized (expected) inflation group will score higher on the scale, on average, compared with participants in the neutral condition.

2025-04-28

2025-07-31

They key outcome variable of the study is the allocation of a hypothetical $10,000 endowment across three assets that vary in the skewness of their return distributions (and cash).

Participants are asked to allocate their hypothetical $10,000 endowment among four options: three assets with varying return distribution skewness (low, medium, and high) and cash. We will compute a skewness preference measure by dividing the amount allocated to the high-skewness asset by the total endowment ($10,000).

We also ask about participants about the likelihood of them changing their current investment strategy if they are faced with high inflation and whether they would change the composition of their retirement portfolio. Additionally, we ask whether inflation increases the likelihood that they will purchase a lottery ticket or invest in cryptocurrency along with their motivation for doing so.

Participants answer multiple choice questions. Questions regarding likelihoods are measured on a 5-point Likert scale (1 = strongly disagree, 5 = strongly agree). The motivation questions are categorical, with the following options: 'compensating for the decreased value of your money,' 'hedging against inflation,' 'lack of attractive alternative investments,' 'influence of media/social trends,' or 'other' (where participants are asked to specify).

Participants will be recruited to complete an online survey via Amazon MTurk. This study employs a between-subjects design with three conditions that manipulate perceptions of inflation. Participants are randomly assigned to read one of three narratives: (1) high realized inflation (describing abnormally high inflation over the past month), (2) high expected inflation (forecasting abnormally high inflation in the coming month), or (3) neutral inflation (describing normal price changes). After exposure to the narrative, participants complete a manipulation check to verify comprehension, followed by measures assessing their economic perceptions and decision-making.

Participants are then asked to perform an investment task given a hypothetical $10,000. They are presented with histograms representing the return distributions of three assets. They are then asked to allocate their $10,000 across these three assets. They are also given the option to allocate some of their endowment to cash.

Our study includes additional questions related to risk aversion (following Eckel and Rojas 2010), financial literacy, and demographic characteristics such as age education, income, region of residence, employment status, marital status, gender identity, and race.

Participants will be recruited to complete an online survey via Amazon MTurk. This study employs a between-subjects design with three conditions that manipulate perceptions of inflation. Participants are randomly assigned to read one of three narratives: (1) high realized inflation (describing abnormally high inflation over the past month), (2) high expected inflation (forecasting abnormally high inflation in the coming month), or (3) neutral inflation (describing normal price changes). After exposure to the narrative, participants complete a manipulation check to verify comprehension, followed by measures assessing their economic perceptions and decision-making.

The narrative presented to all participants is as follows: In early 2021, Americans started noticing prices going up—gas cost more, grocery bills stretched higher, and rent kept climbing. At first, people thought it was just a short-term effect of the pandemic, but by mid-year, prices were rising faster than they had in over a decade. The government said it was temporary, but by December, overall prices had jumped 7% compared to the year before—the biggest increase in 40 years. Housing costs surged even more, with rents rising over 15% in some areas.

Individuals in the high realized inflation condition are presented with the following sentence at the end of the narrative: "Since then, prices have been rising, and inflation has increased further." Individuals in the high expected inflation condition are presented with the following sentence at the end of the narrative: "It is expected that prices will continue rising and inflation will increase further." Individuals in the control condition are presented with the following sentence at the end of the narrative: "However, since then prices have stabilized and inflation returned to its normal level."

After exposure to the narrative, participants complete a manipulation check to verify comprehension, followed by measures assessing their economic perceptions and decision-making.

Participants are then asked to perform an investment task given a hypothetical $10,000. They are presented with histograms representing the return distributions of three assets A, B, and C. Asset A represents a risk-free asset with a uniform distribution of returns, Asset B represents the overall market with normally distributed returns, and Asset C represents a "lottery"-type asset with positively skewed returns. The averages and standard deviations of the presented distributions match the true distributions of the respective asset categories. Participants are then asked to allocate their $10,000 across these three assets. They are also given the option to allocate some of their endowment to cash.

Randomization done by Qualtrics.

Individual

No

1,000 individuals

1,000 individuals

1,000 individuals