Modeling Expectation Formation Involving Several Sources of Information
Experimental studies of expectation formation of subjects are predominantly limited to the prediction of one single time series despite the practical relevance of expectations in situations with multiple sources of information. In this paper, we report on an experiment in which subjects are given time series (indicators) as additional information for the judgemental forecast of a stationary time series. The quality and the number of these indicators are varied in three versions of a forecasting experiment. We explore the effects on forecasting accuracy and we test the average forecasts of the subjects for consistency with the rational expectations hypothesis. A simple heuristic is presented that explains the average forecasting behavior better than the rational expectations if indicators are presented to the subjects. It is demonstrated by a simulation study that this result is representative for the considered stationary stochastic processes. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2008.
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Volume (Year): 9 (2008)
Issue (Month): (02)
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hey, John D., 1994. "Expectations formation: Rational or adaptive or ...?," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 329-349, December.
- Lim, Joa Sang & O'Connor, Marcus, 1996. "Judgmental forecasting with time series and causal information," International Journal of Forecasting, Elsevier, vol. 12(1), pages 139-153, March.
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
- Gerald P. Dwyer & Arlington W. Williams & Raymond Battalio & Timothy Mason, 1989.
"Tests of rational expectations in a stark setting,"
1989-001, Federal Reserve Bank of St. Louis.
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