Abstract:
We studied the impact of phrasing on consumer inflation expectations in Pakistan
using an online survey. Our results imply that optimal phrasing of the question can
significantly reduce bias in responses. When the question is asked as an absolute change
from PKR 100, responses are high and volatile, with many in multiples of tens and fifties.
Moreover, we studied the impact of closed-ended questions on inflation expectations and
found that responses to closed-ended questions suffer from central tendency bias. Our study
also confirms the impact of information on the formation of inflation expectations. When
presented with information about current inflation levels, respondents tend to lower their
inflation expectations. Literature provides two possible reasons for this: information bias or
social bias.
