9 December 2021

Consumer behavior and uncertainty during crisis


During the covid-19 pandemic we Danes reduced our consumption well below the previous level, partly due to restrictions, to a fall in demand caused by general uncertainty, and to mitigate the risks of getting infected. The question is which role the media plays in forming our expectations? The link between expectations and behavior is still unclear. And that is what Michael Bergman will solve with a grant from Carlsbergfondet

Michael's project focuses on housing bubbles and pandemic consumer behavior – markets and consumers are intertwined and the causal links between people’s expectations and their consumption behavior is yet to be established.

While there are studies focusing on the effects of the current pandemic on private consumption, there are few attempts to understand the drivers of the change in private consumption and no attempt to analyze the reasons why some consumers decides to consume less while others decides to remain consuming or even increase their consumption.

The main focus on Michael's project is on understanding the causal links between uncertainty measured using the newspaper based method mentioned above and the formation of consumer expectations at an individual level using register data. We focus on two episodes, the current pandemic and the housing price boom and bust in the mid 2000’s.

Michael explains the method: "We combine data from the consumer confidence survey conducted each month with register data allowing us to measure changes in household expectations about their own future economy at an individual level. The register data also allows us to infer whether or not households of particular types are over-optimistic or over-pessimistic by comparing their own expectation about their future income with the realized change in income. Similarly, register data allows us to compare consumer’s plans to buy new houses with their realized purchases."