ESMT Berlin Launches European Expectations Center to Study How Economic Beliefs Drive Behavior

Every economic decision, from a family’s choice to delay a home purchase to a board’s decision on a new factory, rests on a forecast about the future. Those forecasts are rarely the product of sophisticated models; more often they are rough mental estimates, shaped by headlines, personal experience, and conversations with neighbors and colleagues. Understanding how such estimates form, and how they feed back into spending, saving, investing, and pricing, has become one of the most active frontiers in modern economics. ESMT Berlin has now given this frontier an institutional home, announcing the establishment of the European Expectations Center, a research hub dedicated to the systematic study of how economic expectations arise and how they influence behavior across households, firms, and financial markets.

The new center, known as the EEC, is led by Michael Weber, an economist at ESMT Berlin and a recipient of the Alexander von Humboldt Professorship, one of Germany’s most prestigious endowed research awards. According to the announcement, the center examines how households, firms, and financial market participants form expectations about economic developments and how these expectations influence economic behavior. That tripartite focus is significant. Much of the existing literature on expectations has concentrated on one actor at a time, typically households in household surveys or professional forecasters in financial contexts. A center designed from the outset to span all three groups reflects a growing recognition among economists that expectations do not form in isolation, but interact across the economy in ways that can amplify or dampen economic shocks.

The intellectual case for the center rests on a body of research that has transformed macroeconomics over the past two decades. Expectations about the economic future shape many of the decisions made by individuals and businesses: how much they spend or save, whether they invest, and how they plan for the long term. In theoretical models, anticipated inflation, expected income growth, and perceived employment risk all enter the calculus that determines consumption and investment. But empirical work has repeatedly shown that the expectations held by ordinary people diverge sharply from those of professional economists. Households often misjudge inflation levels, react asymmetrically to price increases and decreases, and update their beliefs in response to salient personal experiences rather than statistical aggregates. These deviations matter, because if expectations drive behavior, then systematic biases in expectations can produce systematic patterns in aggregate economic outcomes.

The better expectations are understood, the more reliably researchers can assess how individuals and organizations respond to economic shocks, market developments, and public communication. This point has taken on particular urgency since the inflation surge that followed the pandemic era, when central banks across Europe and North America discovered how difficult it is to gauge what the public actually believes about future prices. Survey measures of inflation expectations rose alongside realized inflation, and policymakers debated whether those beliefs had become unanchored, a scenario in which the public loses faith that inflation will return to target and behaves in ways that make the fear self-fulfilling. The episode underscored a lesson that the EEC’s research agenda takes as a starting point: reliable, high-frequency, well-designed measurement of expectations is not a luxury but a prerequisite for sound economic management.

To examine these dynamics, the center has organized its research program around four key areas. The first concerns households and how individuals form expectations about inflation, income, employment, and broader economic conditions. Research in this area typically draws on large-scale surveys that ask respondents not only for point forecasts but also for the uncertainty they attach to those forecasts, the information they use, and how their answers change when they receive new information. A second area examines how firms form expectations and how those expectations shape investment, hiring, and pricing decisions. Firm-level expectations have attracted growing attention because corporate beliefs about future demand, costs, and interest rates directly determine hiring plans and price setting, the channels through which expectations translate into realized inflation and employment.

The third area is financial markets, where expectations play a central role in investment decisions, asset pricing, and broader market behavior. Financial market participants are, in a formal sense, professional expectation formers, yet research has documented persistent heterogeneity in their beliefs, herding behavior, and sensitivity to framing and communication. The fourth area covers monetary policy and communication, examining how central bank actions and communication influence the economic expectations of households, firms, and financial market participants. This last area connects the center directly to one of the most consequential policy questions of the era: how words from a central bank move beliefs, and why the same message may persuade markets while leaving the broader public largely unaffected.

Weber framed the mission in terms of data. To better understand economic developments, he said, researchers need reliable data on what people and businesses think and how their assessments change over time. With the European Expectations Center, he said, the aim is to collect this data and make it available for research and economic policy debates. The emphasis on data infrastructure rather than on any single study suggests that the center sees itself as a platform for the wider research community. Survey-based expectations research is notoriously resource-intensive: designing questionnaires that avoid framing biases, recruiting representative samples, fielding surveys at sufficient frequency to capture dynamics, and harmonizing measures across countries all require sustained funding and technical expertise that individual research projects rarely command.

Toward that end, the EEC plans to provide the research community with extensive datasets and research resources, including survey datasets, questionnaires and survey instruments, working papers, and research outputs. Making survey instruments openly available is a deceptively important contribution. When researchers use comparable questions across countries and over time, their findings can be pooled, replicated, and extended, accelerating cumulative progress in a field where results have often been fragmented across bespoke surveys. The center also intends to work with partners to support knowledge exchange, develop new research initiatives, and disseminate findings to academic, policy, and practitioner audiences. Its current partner is the Bank for International Settlements, the Basel-based institution often described as the central bank for central banks, whose involvement signals an interest in connecting academic measurement work directly to the policy institutions that depend on it.

The European setting gives the project particular relevance. The euro area presents a distinctive laboratory for expectations research, because monetary policy is set at the supranational level while economic conditions vary considerably across member states. Households in different countries may experience the same monetary policy decision very differently, depending on their local inflation rates, housing markets, and labor conditions, and their divergent expectations can complicate the transmission of policy. A European center dedicated to expectations research is positioned to document these differences systematically and to test how communication strategies can be designed to reach heterogeneous publics. The involvement of researchers based at a leading international business school in Berlin also bridges the traditionally separate literatures on household expectations, corporate decision-making, and financial markets.

For the broader public, the stakes of this research agenda are easy to state. Expectations are the hinge between economic news and economic behavior: a headline about inflation matters only insofar as it changes what people believe and therefore what they do. If researchers can measure those beliefs accurately, identify when and why they go wrong, and understand which forms of communication correct them, then forecasts improve, policies become better targeted, and the damaging feedback loops that turn fear into recession or optimism into overheating become easier to manage. The European Expectations Center will not answer those questions on its own, but by building the shared data foundation on which such answers depend, it aims to give economists, central bankers, and policymakers a clearer view of the beliefs that quietly steer the economy.

Subject of Research: Formation of economic expectations among households, firms, and financial market participants and their influence on economic behavior

Article Title: ESMT Berlin establishes European Expectations Center for research on economic expectations

Article References: ESMT Berlin establishes European Expectations Center for research on economic expectations. (n.d.). Original publication

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Keywords: ESMT Berlin, European Expectations Center, Michael Weber, economic expectations, inflation expectations, household surveys, firm expectations, financial markets, monetary policy, central bank communication, Bank for International Settlements, economic behavior