Expectation Formation with Correlated Variables

• 成果类型: Article
• 署名作者: He, Simin; Kucinskas, Simas
• 署名单位: Shanghai University of Finance & Economics; Humboldt University of Berlin
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1093/ej/uead096
• 发表日期: 2024
• 页码: 1517-1544
• 关键词: rational-expectations; inflation

摘要

We experimentally study how people form expectations about correlated variables. Subjects forecast a time-series variable A. In treatment Baseline, subjects only observe past values of A. In treatment Correlated, they additionally observe a correlated variable B; A is equally predictable and has the same univariate properties in both treatments. Subjects are significantly less accurate and underreact more in Correlated, inconsistent with Bayesian learning. A structural-model estimation indicates that subjects (i) underestimate the level of correlation and (ii) are insensitive to actual correlation. Our study provides first direct evidence of correlation neglect in the domain of expectation formation.