When choosing between the two investments, the respondent seeking to maximize her payoff should switch investments at most once, and if so, should switch from the one yielding a nominal return to the inflation-protected investment sooner, the higher her inflation expectations.31 We found that the choices in the financially incentivized experiment were indeed meaningfully related to respondents’ inflation expectations, on average. Differences in reported uncertainty were also associated with different choices in the experiment, in the direction predicted by theory. Deviations from expected utility maximization were more likely  29  The observed heterogeneity of expectations is important for policy purposes, since we find that agents with different characteristics act on their inflation beliefs and update their expectations in distinct ways. 30  Armantier et al. (2015). 31  This is an agent’s optimal choice under expected payoff maximization. We also show that the respondent should switch sooner to the inflation-protected investment, the higher her risk aversion and the more uncertainty she expresses in her inflation expectations. BIS central bankers’ speeches  9  to occur for respondents with low education, as well as those with low numerical and financial literacy. We were able to repeat the experiment with the same respondents six months later. We found that individual changes in expectations were significantly associated with changes in how early respondents switched between investments, and that not only the direction but also the magnitude of these changes was consistent with a simple expected utility maximization framework.

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