Beliefs and expectations play a major role in economic analysis. In the proposed research, I seek to advance our empirical understanding of belief and expectation formation processes by incorporating memory patterns. Intuitively, memory plays a crucial role in the process of belief formation and the evolution of belief distortions, as large parts of the information used when forming beliefs is retrieved from memory. While recent theoretical work has begun to recognize the important role of memory for belief formation, empirical research is virtually non-existent. Accordingly, this research sets out to study the role of memory for belief formation in a set of key domains of behavioral economics. In parts 1a and 1b, I propose to study the role of associative recall in expectation formation. The principle of associative recall posits that current cues trigger the recall of past news that are mentally associated with the cue. Two central predictions that emerge from this principle are: (i) context-cued associative recall can lead to overreaction; (ii) context-cued associative recall can create belief spillovers. I plan to test both predictions in tailored lab experiments. In part 2a, I seek to study the implications of memory for reference-dependent behavior. Reference-dependent preferences are at the heart of many behavioral theories. Yet, the nature and determinants of reference points remains an open issue. I plan to experimentally study how memory shapes reference points. Memory patterns can endogenize the reference point and will deliver precise conditions as to when reference points can be expected to be determined by rational expectations, and when they are more likely to be backward-looking. In the final part of this proposal, I plan to study a key puzzle in behavioral economics. Why are so many people naïve about their present bias? In this project, I propose to experimentally study the role (imperfect) memory plays in generating and maintaining naïveté.

Internal migration in China has rapidly increased in the past thirty years. Fuelled by the reforms initiated at the end of 1970s, the largest move of labour force in history started taking place, with an enormous amount of individuals temporarily leaving rural areas to work in urban areas attracted by better economic conditions. Not only the Great Migration is an important aspect of the recent economic paradigm of China, but is also playing a crucial role in the international context. A large share of the global demand over the past decades has been sustained by the shift of the Chinese labour force out of the agricultural sector into the export-oriented manufacturing and tertiary sectors in urban areas. On parallel, international migration to Europe has been growing in the past twenty years, also triggered by increasing economic integration with developing countries. In particular the Chinese diaspora has been growing, with many young talented Chinese migrants moving to countries such as France, the UK and Germany to further their education in disciplines in which Europe typically has a scarce supply. In this context, our proposed project aims at investigating how migration reshapes the consumption patterns of migrants and other individuals indirectly affected by migration, with particular attention to implications in terms of consumption inequality. Our focus is on both the Great Migration in China and the Chinese diaspora in the EU. While there is a wealth of studies analysing the consequences of migration on labour market outcomes, systematic evidence is missing on how consumption, consumption behaviour and consumption inequality are affected by migration. We aim at filling this gap by answering the following three research questions: a) What is the impact of the Great Migration on consumption patterns? b) What are the relationships between institutions, population change and consumption behaviour? c) Does migration lead to the transfer of consumption norms? Research shows that consumption is an ideal measure for capturing permanent income and thus for predicting long-run economic well-being. In the first research question we focus on studying how migration affects consumption of migrants before, during and after migration, as well as consumption of individuals who are indirectly affected by migration (family left behind and urban residents). With the ageing of the population and the shrinking of the working-age population in China many individuals will have to adapt their behaviour in terms of how much they can currently consume and how much should be saved for future consumption. Housing is a key asset that is expected to be affected by such a trade-off. Our second research question investigates what migration has to do with housing demand and housing prices, as well as how housing affects the consumption of remaining goods. We devote the third research question to understand whether and how migration leads to a transfer of consumption norms from destination to sending areas. Migrant workers living in urban areas are increasingly exposed to the city life style, absorbing the consumption behaviour of urban residents. Similarly, many young Chinese migrants learn about European values and norms during their permanence, and such exposure is likely to determine a transfer of consumption behaviour back to China, channelled through the use of new technology, media and social networks. The ultimate goal of our research is to inform policy about how migration can affect consumption behaviour and consumption inequality, so that disparities and social instability can be prevented, and consumption - to the extent that it promotes growth and increases well-being - can be fostered.