Hassan Afrouzi, Spencer Y Kwon, Augustin Landier, Yueran Ma, David Thesmar
{"title":"Overreaction in Expectations: Evidence and Theory","authors":"Hassan Afrouzi, Spencer Y Kwon, Augustin Landier, Yueran Ma, David Thesmar","doi":"10.1093/qje/qjad009","DOIUrl":null,"url":null,"abstract":"Abstract We investigate biases in expectations across different settings through a large-scale randomized experiment where participants forecast stable stochastic processes. The experiment allows us to control forecasters’ information sets as well as the data-generating process, so we can cleanly measure biases in beliefs. We report three facts. First, forecasts display significant overreaction to the most recent observation. Second, overreaction is stronger for less persistent processes. Third, overreaction is also stronger for longer forecast horizons. We develop a tractable model of expectations formation with costly processing of past information, which closely fits the empirical facts. We also perform additional experiments to test the mechanism of the model.","PeriodicalId":48470,"journal":{"name":"Quarterly Journal of Economics","volume":null,"pages":null},"PeriodicalIF":11.1000,"publicationDate":"2023-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"4","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Quarterly Journal of Economics","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1093/qje/qjad009","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 4
Abstract
Abstract We investigate biases in expectations across different settings through a large-scale randomized experiment where participants forecast stable stochastic processes. The experiment allows us to control forecasters’ information sets as well as the data-generating process, so we can cleanly measure biases in beliefs. We report three facts. First, forecasts display significant overreaction to the most recent observation. Second, overreaction is stronger for less persistent processes. Third, overreaction is also stronger for longer forecast horizons. We develop a tractable model of expectations formation with costly processing of past information, which closely fits the empirical facts. We also perform additional experiments to test the mechanism of the model.
期刊介绍:
The Quarterly Journal of Economics stands as the oldest professional journal of economics in the English language. Published under the editorial guidance of Harvard University's Department of Economics, it comprehensively covers all aspects of the field. Esteemed by professional and academic economists as well as students worldwide, QJE holds unparalleled value in the economic discourse.