The Bias towards Zero in Aggregate Perceptions: An Explanation Based on Rationally Calculating Individuals
AbstractThe authors show that individuals' errors in identifying the relationships among variables cause downward biases in the aggregate that are equivalent to the public underestimating the strengths of the true relationships. They argue that rational expectations has considered only the 'misestimation' type of error, which can 'cancel out' in the aggregate, but that with errors in identifying relationships there is no similar canceling-out effect. The result is that the public appears 'irrationally' to underestimate the strength of relationships among variables even when all individual agents behave rationally. Empirical evidence that forecasts are systematically biased is reinterpreted using the authors discussion. Copyright 1996 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 34 (1996)
Issue (Month): 2 (April)
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- Congleton, Roger D, 2001.
" Rational Ignorance, Rational Voter Expectations, and Public Policy: A Discrete Informational Foundation for Fiscal Illusion,"
Springer, vol. 107(1-2), pages 35-64, April.
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- Roger Congleton, 2007. "Informational limits to democratic public policy: The jury theorem, yardstick competition, and ignorance," Public Choice, Springer, vol. 132(3), pages 333-352, September.
- Bryan Caplan, 2002. "Systematically Biased Beliefs About Economics: Robust Evidence of Judgemental Anomalies from the Survey of Americans and Economists on the Economy," Economic Journal, Royal Economic Society, vol. 112(479), pages 433-458, April.
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