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Subjective Uncertainty, Expectations, and Firm Behavior

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  • Lautenbacher, Stefan
Abstract
Based on a large and representative panel of German firms, this paper relates a novel measure of subjective uncertainty to business expectations and firm decisions. Uncertainty is measured by asking managers directly how uncertain they are about their future business development. I show that the relationship between perceived uncertainty and expectations is strongly negative at the micro level and almost perfectly inverse in the aggregate. It is also state-dependent: uncertainty co-moves less with expectations in bad times. In a case study at the onset of the COVID-19 recession, I exploit the between-firm variation in firms' uncertainty and expectations to examine the implications of the ``real options'' theory. I find that changes in uncertainty during the aggregate downturn do not predict ``wait and see'' behavior. By contrast, first moment changes are related to investments deferral and a reduction of the workforce.

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  • Lautenbacher, Stefan, 2020. "Subjective Uncertainty, Expectations, and Firm Behavior," MPRA Paper 103516, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103516
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    References listed on IDEAS

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    Cited by:

    1. Demmelhuber Katrin & Sauer Stefan & Wohlrabe Klaus, 2023. "Beyond the Business Climate: Supplementary Questions in the ifo Business Survey," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 243(2), pages 169-182, April.
    2. Florian Dorn & Sahamoddin Khailaie & Marc Stoeckli & Sebastian C. Binder & Tanmay Mitra & Berit Lange & Stefan Lautenbacher & Andreas Peichl & Patrizio Vanella & Timo Wollmershäuser & Clemens Fuest & , 2023. "The common interests of health protection and the economy: evidence from scenario calculations of COVID-19 containment policies," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(1), pages 67-74, February.
    3. Stefan Lautenbacher & Stefan Sauer & Klaus Wohlrabe, 2020. "Wie schwer fällt es Manager*innen, den Verlauf zukünftiger Geschäfte vorherzusagen? Das neue Maß der ifo Geschäftsunsicherheit," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(12), pages 32-35, December.
    4. Sebastian Link & Stefan Sauer, 2020. "»Lockdown light« lässt Kurzarbeit im November wieder etwas ansteigen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(12), December.
    5. Dovern, Jonas, 2024. "Eliciting expectation uncertainty from private households," International Journal of Forecasting, Elsevier, vol. 40(1), pages 113-123.

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    More about this item

    Keywords

    subjective uncertainty; expectations; firms; corporate decisions; survey data; business cycles;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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