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Business-Level Expectations and Uncertainty

Dec 2017
Working Paper
Nicholas Bloom, Steven J. Davis, Lucia Foster, Brian Lucking, Scott Ohlmacher, Itay Saporta-Eksten

The Census Bureau’s 2015 Management and Organizational Practices Survey collected innovative 5-bin data on own future outcomes and probabilities for shipments, employment, capital and materials expenditures at 35,000 manufacturing plants. About 85% of plants provide logically sensible responses to the 5-bin questions, suggesting that most managers can form and express (subjective) probability distributions. The other 15% of plants have lower productivity, employment, wages, managerial education, structured management scores, and multinational ownership. First and second moments of plant-level subjective probability distributions covary strongly with first and second moments, respectively, of historical outcomes, suggesting that our subjective expectations data are well founded. Finally, our plant-level subjective uncertainty measures correlate positively with realized stock-return volatility, option-implied volatility and analyst disagreement about future earnings for the plant’s parent firm and for the median publicly listed firm in the plant’s industry.

Publication Keywords: 
Subjective expectations
business-level uncertainty
Geographic Regions: 
North America