Two-Stage Central Bank Communication under Cognitive Load: Lessons from Human Factors for Expectation Management

Shen et al. (2024) show that a two-stage warning system improves driver attention and takeover performance, but its efficacy hinges on users’ expectations and cognitive load. Macroeconomic communication—especially around regime changes or ZLB episodes—faces analogous limits: audiences have heterogeneous priors and limited bandwidth, and task complexity matters for forecasting accuracy (Bao, Hommes, and Pei 2021). This project designs and tests a “two-stage” policy guidance framework: Stage 1 is a simple, capability-oriented signal (“we will do X until Y condition”), and Stage 2 is a richer, conditional policy path released once attention is captured. We experimentally evaluate, via learning-to-forecast markets (Bao et al.) and survey experiments, how two-stage communication affects attention allocation (measured via response times, recall, search intensity), forecast dispersion, and anchoring of inflation expectations—especially under induced cognitive load. Relative to Bersson et al. (2023), who modify the expectation formation process (level-k) to avoid puzzles, we modify the communication architecture to steer expectations formation. The novelty is importing validated design insights from ergonomics into macro policy communication, moving beyond “more guidance” toward “sequenced, cognitively-optimized guidance.” If successful, central banks could deliver forward guidance that works when it should, reduces overreaction when it shouldn’t, and tailors complexity to the state of the world.

References:

1. Expectation Formation in Finance and Macroeconomics: A Review of New Experimental Evidence. T. Bao, C. Hommes, Jiaoying Pei (2021). Social Science Research Network.
2. How does drivers' attention change when using a two-stage warning system? Effects of expectation and cognitive load.. Yang Shen, Jiajun Li, Zhen Yang, Shu Ma (2024). Ergonomics.
3. Expectations Formation, Sticky Prices, and the ZLB. Elizabeth Bersson, P. Hürtgen, Matthias O. Paustian (2023). Social Science Research Network.
4. Expectations Formation, Sticky Prices, and the ZLB. Elizabeth Bersson, P. Hürtgen, Matthias O. Paustian (2023). Social Science Research Network.