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USC finance professor envisions clearer consumer sentiment

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Ask 100 two-partner households about the economy and you will get 100 perspectives. Problem is, that leaves half the voices in the households unheard.

Da Ke, assistant professor of finance in the Darla Moore School of Business, is working to better understand household decision-making and more accurately capture public opinion. His research has found that economic surveys overlook valuable voices, and that gender norms tend to dismiss even better-informed female partners. By changing methodology to include both partners in a household, policymakers and economists can get a truer take on consumer sentiment.

Differences are closer to home

The Federal Reserve Bank and trusted surveys — from the longest-running University of Michigan Survey of Consumers to the European Central Bank’s Consumer Expectations Survey first conducted in 2020 — only invite input from one person per household. Doing so assumes those with partners share similar feelings on finances, and that contrary views lie only between households.

That is a disservice to household partners and economists alike, Ke suggests.

In his forthcoming Journal of Finance paper, “Intrahousehold Disagreement About Macroeconomic Expectations,” Ke finds that about 40 percent of conflicting opinions on inflation, the economy and stock market performance are within homes rather than among them. That level of disagreement disrupts the notion that household partners have very similar backgrounds and mindsets.

In reality, partners differ in how closely they follow financial data. Ke has found that individuals given stock market performance data hold stronger opinions despite potential risk. They also tend to be less open to their partner’s views.

“This is very important because when we talk about inflation, those expectations will determine how you will buy and save, whether you want to buy big-ticket items, when you want to buy a house, things like that,” Ke says.

Jumping to conclusions can be costly

The level of intrahousehold disagreement is surprising to economists given “assortative mating,” Ke notes. People tend to choose spouses or partners based on common characteristics like education level and political views. Logic says they likely communicate often and share similar opinions. Yet their specific knowledge or attention to economic conditions colors their respective views of the future.

“Economists are assuming that everyone is making rational choices and everybody will have exactly the same beliefs about future interest rates, unemployment and so on. Obviously that’s not the case,” Ke says.

Factoring one voice per household overvalues the outspoken while dismissing the other. The impact over time, while difficult to quantify, could be reduced household financial well-being.

“You need to think about the bargaining process between different couples. A collective decision-making process involves accounting for your spouse’s beliefs and preferences,” Ke says. ”Insufficiently incorporating a partner’s well-informed opinion may lead to less-than-ideal asset allocation and less wealth accumulation.”

“Economists are assuming that everyone is making rational choices and everybody will have exactly the same beliefs about future interest rates, unemployment and so on. Obviously that’s not the case."

Da Ke, USC assistant professor of finance

Learning from experience

Ke saw opportunity in looking beyond common factors in decision making power like relative education and income. Early exploration of intrahousehold dynamics provided evidence that gender roles affect investment decisions and idea exchange.

His 2018 American Economic Association session presentation and paper note significant differences internationally. The least-traditional countries have much greater stock market participation than the most traditional. While the United States is less so, he still found that women in its traditional-role homes are either less vocal or less heard in financial decisions.

Ke took a closer look in “Who Wears the Pants? Gender Identity Norms and Intra-Household Financial Decision Making,” which the Journal of Finance published in 2021. Predictably, he found that households with husbands in financial careers are more invested in stocks. Yet even in those where the wife works in finance and the husband does not, gender roles prove more influential.

That is what Ke saw firsthand in his youth, and he imagines a different dynamic.

“My dad was a journalist, and my mom worked for the tax bureau and is more financially sophisticated. But every financial decision was made by my dad when I was a child,” Ke says. “Now I can see that if my dad had listened more to my mom, it may have been better for our household.”

Investment in the future

What is at stake? Disagreement discourages stock market participation, which Ke notes as a potentially greater factor in wealth inequality than income. Financial advisors may help some couples reach consensus, but roughly half of Americans lack access to the market at all.

Then there are bigger-picture issues of broadened economic forecasting and empowerment of women to shape their financial fortunes.

“This is just the first step for future research. There are many other factors we need to explore,” Ke says. “It's important to account for these interactions within households and further investigate why some women may have less say in household finances. Then we can come up with better economic models to advance our understanding of how people make decisions.”