We study the effects of central bank communication about financial stability on individuals’ expectations and risk-taking. Using a randomized information experiment, we show that communication causally affects individuals’ beliefs and investment behavior, consistent with an expectations channel of financial stability communication. Individuals receiving a warning from the central bank expect a higher probability of a financial crisis and reduce their demand for risky assets. This reduction is driven by downward revisions in individuals’ expected Sharpe ratios due to lower expected returns and higher perceived downside risks. In addition, these individuals deposit a smaller fraction of their savings at riskier banks.

We show  that selective recall of events spanning six decades shapes beliefs about rare downside outcomes today. Recalled memories in a representative survey exhibit both recency and primacy: events close to the time of recall and early-life experiences are disproportionately likely to come to mind. The impact of memories on tail beliefs is governed by similarity and interference: memory negativity is strongly associated with perceived stock market crash risk, even controlling for objective lifetime experiences. Rather than simply shifting subjective return distributions, selective recall of influential events changes their perceived shape by disproportionately affecting downside risk.
Belief updating is consistent with a memory-based model in which similarity, interference, and representativeness determine how new information is interpreted. Households adjust their portfolio allocations only in response to higher perceived tail risk, and perceived safe-haven assets depend on the type of tail event. 

Using a randomized information experiment embedded in a representative survey, we study households' economic expectations at the onset of the COVID-19 crisis. Our results indicate that households are not fully aware of the economic situation shortly after the pandemic outbreak. Those who receive information on experts' views become more pessimistic and uncertain about the macroeconomic outlook, and exhibit a reduced willingness to consume. Surprisingly, this also holds true for households that receive information on major monetary and fiscal stimulus measures announced in response to the COVID-19 crisis. This finding indicates that the bad news about the economy conveyed in policy announcements overshadows the good news about the measures. The effects are persistent and driven by households that are less exposed to the economic consequences of the pandemic, whether through financial losses or news exposure, underscoring the significant role of personal experiences in household expectation formation.