Predicting the macroeconomic effects of abstract and concrete events
This paper presents experimental evidence that non-experts do not distinguish between macroeconomically relevant and irrelevant events in the way economic theory would suggest. Students were asked to predict the likely consequences of several events in fictitious newspaper reports on GDP, inflation, unemployment, and aggregate sales. They overestimate the effects of irrelevant events, especially if those events are easy to imagine. The magnitudes of the predicted effects are clearly related to the concreteness of the events. The results are compatible with the use of the availability heuristic in the process of forming economic expectations.
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- John Duffy & Eric O'N. Fisher, 2005. "Sunspots in the Laboratory," American Economic Review, American Economic Association, vol. 95(3), pages 510-529, June.
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"Sticky Information Phillips Curves: European Evidence,"
Journal of Money, Credit and Banking,
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- Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298. Full references (including those not matched with items on IDEAS)
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