Marsilius Lecture Winter Semester 2024/25 Experience Effects - The Longlasting Effects of Crises and Other Past Experiences on Expectations and Economic Decisions

Prof. Dr. Ulrike Malmendier, Haas School of Business, University of California, Berkeley (USA) / Member of the German Council of Economic Experts
Thursday, 14. November 2024, 16.00, Aula der Alten Universität

Personal experiences of economic outcomes, from global  financial crises to individual-level job losses, can shape individual beliefs, risk attitudes, and choices for years to come. The research on experience effects shows that individuals act as if past outcomes that they experienced were overly likely to occur again, even if they are fully informed about the actual likelihood. This reaction to past experiences is long-lasting though it decays over time as individuals accumulate new experiences.
Modern brain science helps understand these processes. Evidence on neural plasticity reveals that personal experiences and learning alter the strength of neural connections and fine-tune the brain structure to those past experiences (“use-dependent brain”). In this talk, I provide evidence that experience effects help understand belief formation and decision-making in a wide range of economic applications, including stock-market investment, inflation, home purchases, mortgage choices, and consumption expenditures. I argue that experience-based learning is broadly applicable to economic decision-making and discuss topics for future research in education, health, race, and gender economics.