Do We Follow Others When We Should? A Simple Test of Rational Expectations
American Economic Review
vol. 100,
no. 5, December 2010
(pp. 2340-60)
Abstract
The paper presents a meta dataset covering 13 experiments on social learning games. It is found that in situations where it is empirically optimal to follow others and contradict one's own information, the players err in the majority of cases, forgoing substantial parts of earnings. The average player contradicts her own signal only if the empirical odds ratio of the own signal being wrong, conditional on all available information, is larger than 2:1, rather than 1:1 as would be implied by rational expectations. A regression analysis formulates a straightforward test of rational expectations which strongly rejects the null. (JEL D82, D83, D84)Citation
Weizsäcker, Georg. 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations." American Economic Review, 100 (5): 2340-60. DOI: 10.1257/aer.100.5.2340Additional Materials
JEL Classification
- D82 Asymmetric and Private Information
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- D84 Expectations; Speculations