Expectation Formation with Correlated Variables

Datos Bibliográficos

ID9720733
AutoresSimin He (0000-0001-9728-6313, Shanghai University of Finance and Economics), Simas Kučinskas (0000-0003-4772-9424, Humboldt University of Berlin , Germany)
Año2024
Volumen134
Número660
Páginas1517-1544
Fecha de publicación2024-04-19
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaThe Economic Journal (JOURNAL)
Identificadores de la revistaISSN: 0013-0133 • E-ISSN: 1468-0297
EditorialOxford University Press (PUBLISHER • GB)
DOI10.1093/ej/uead096
OpenAlexW4388410098
IdiomaEN
Citas recibidas1
Referencias citadas36

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

Correlation · Econometrics · Multivariate statistics · Neglect · Series (stratigraphy · Statistics · Univariate · Variable (mathematics · Variables · Decision-Making and Behavioral Economics · Experimental Behavioral Economics Studies · Forecasting Techniques and Applications · Mathematics · Psychology