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How experts decide: identifying preferences versus signals from policy decisions

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  • Hansen, Stephen
  • McMahon, Michael

Abstract

A large theoretical literature assumes that experts di ffer in terms of preferences and the distribution of their private signals, but the empirical literature to date has not separately identi ed them. This paper proposes a novel way of doing so by relating the probability a member chooses a particular policy decision to the prior belief that it is correct. We then apply this methodology to study diff erences between internal and external members on the Bank of England's Monetary Policy Committee. Using a variety of proxies for the prior, we provide evidence that they di ffer significantly on both dimensions.

Suggested Citation

  • Hansen, Stephen & McMahon, Michael, 2011. "How experts decide: identifying preferences versus signals from policy decisions," LSE Research Online Documents on Economics 121717, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121717
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    File URL: http://eprints.lse.ac.uk/121717/
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    References listed on IDEAS

    as
    1. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
    2. Levy, Gilat, 2004. "Anti-herding and strategic consultation," European Economic Review, Elsevier, vol. 48(3), pages 503-525, June.
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    More about this item

    Keywords

    bayesian decision making; committees; monetary policy;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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