American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting
American Economic Review
vol. 103,
no. 3, May 2013
(pp. 570–74)
Abstract
Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over ten periods ("fast"), while the other subjects see a version with dynamics that unfold over 50 periods ("slow"). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.Citation
Beshears, John, James J. Choi, Andreas Fuster, David Laibson, and Brigitte C. Madrian. 2013. "What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting." American Economic Review, 103 (3): 570–74. DOI: 10.1257/aer.103.3.570Additional Materials
JEL Classification
- C53 Forecasting Models; Simulation Methods
- D84 Expectations; Speculations