Essays on expectations

This thesis is made up of three chapters. In the first chapter I conduct a so-called Learning to Forecast Experiment to determine how the eigenvalues of a two-dimensional expectations feedback system affect aggregate market stability. From the results I infer a model for multi-dimensional expectation formation based on the Heuristic Switching Model. In the second chapter I consider theoretically how leverage cycles would be affected when banks have a choice of different leverage control strategies. In particular, they can choose whether to buy as many risky assets as their leverage limit allows for, or they can determine their optimal demand for the risky asset based on their expectation of the future value of these assets. I find that leverage cycles persist in such an environment, although introducing short-selling can prevent them from occurring. The final chapter concerns surveys about inflation expectations. I study through a lab experiment whether the format in which questions in such surveys are posed affects the reported expectations in an important way. The results show that choosing from a continuous set of answers rather than a discrete one gives for higher quality responses.