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Quasi‐rational expectations: Experimental evidence
Author(s) -
Nelson Robert G.,
Bessler David A.
Publication year - 1992
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980110205
Subject(s) - rational expectations , econometrics , autoregressive integrated moving average , aggregate (composite) , autoregressive model , economics , monte carlo method , series (stratigraphy) , variety (cybernetics) , time series , mathematics , statistics , paleontology , materials science , composite material , biology
The theory of quasi‐rational expectations was tested under the controlled conditions of the economics laboratory. Five experiments were conducted with a variety of stochastic processes. In each experiment, subjects produced one‐step‐ahead forecasts of the variable generated by a Monte Carlo process. Comparisons of the performance of an aggregate of subjects' forecasts versus an ARIMA model showed that for relatively simple series (such as those generated by autoregressive processes of first or second order) the aggregate forecast was indistinguishable from that of the model. These results lend support to the theory that forecasts from an ARIMA model can serve as substitutes for aggregate expectations in macroeconomic policy models under some conditions.