Kole, E., Noordegraaf-Eelens, L. and Vringer, B. (2025). Cognitive biases in consumer sentiment: the peak-end rule and herding Empirical Economics, 69(4):2141--2211.

We show that two heuristics, the peak-end rule and herding, generate biases in indexes of consumer sentiment. Both affect respondents{\textquoteright} assessment of changes in their financial position over the past year. Conform the peak-end rule, their answers relate more to extreme detrimental monthly than to yearly changes in key financial and macro-variables. These effects are stronger for more salient variables. As for herding, we document that respondents interviewed in the second round about past financial changes rely too strongly on future expectations from first-round respondents. These effects persist when we account for structural differences in sample composition or for the effect of other predictive variables. Our research shows the presence of both biases outside controlled environments and sheds new light on the relevance of sentiment indexes.