To understand how decisions to invest in stocks are taken, economists need to elicit expectations regarding risk-return tradeoff. One of the few surveys which has elicited such expectations is the Survey of Economic Expectations in 1999-2001. Using the data from this survey, Dominitz and Manski find considerable heterogeneity across respondents that cannot be explained by simple models of expectations formation. Adapting a principle of dual reasoning borrowed from Kahneman, this paper classifies respondents according to their sensitivity to some pathologies. We find a substantial amount of unobserved heterogeneity between the least and the most sensitive respondents. We then sketch a model of expectations formation.
