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Identification of Interaction Effects in Survey Expectations: A Cautionary Note

  • Alfarano, Simone
  • Milakovic, Mishael

A growing body of literature reports evidence of social interaction effects in survey expectations. In this note, we argue that evidence in favor of social interaction effects should be treated with caution, or could even be spurious. Utilizing a parsimonious stochastic model of expectation formation and dynamics, we show that the existing sample sizes of survey expectations are about two orders of magnitude too small to reasonably distinguish between noise and interaction effects. Moreover, we argue that the problem is compounded by the fact that highly correlated responses among agents might not be caused by interaction eects at all, but instead by model-consistent beliefs. Ultimately, these results suggest that existing survey data cannot facilitate our understanding of the process of expectations formation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26002.

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Date of creation: Oct 2010
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Handle: RePEc:pra:mprapa:26002
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  1. Gaber, Stevan, 2010. "Economic implications from deficit finance," BERG Working Paper Series 69, Bamberg University, Bamberg Economic Research Group.
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  15. Witte, Björn-Christopher, 2009. "Temporal information gaps and market efficiency: A dynamic behavioral analysis," BERG Working Paper Series 64, Bamberg University, Bamberg Economic Research Group.
  16. Malaj, Arben & Mema, Fatmir, 2003. "Strategic privatisation: Its achievements and challenges," BERG Working Paper Series 41, Bamberg University, Bamberg Economic Research Group.
  17. Kächelein, Holger, 2004. "Capital Tax Competition and Partial Cooperation : Welfare Enhancing or not?," BERG Working Paper Series 51, Bamberg University, Bamberg Economic Research Group.
  18. Kurt A. Hafner, 2015. "Tax Competition and Economic Integration," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 45-61, 02.
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