SFB 303 Discussion Paper No. B-261

Author: Brennscheidt, G.
Title: Predictive Behavior: An Experimental Study
Abstract: This paper describes a series of laboratory experiments which were focused on the influence of exogenous variables on forecasting behavior. In all experiments, the time series to be forecasted was generated by a linear econometric model involving two or three artificial exogenous variables. This design provides an optimal background for testing rational expectations and least-squares learning. As expected, these hypotheses do not explain observed forecasting behavior satisfactorily. Some phenomena closely related to this lack of rationality are studied: Concentration on changes rather than on levels, underestimation of changes, and upward bias. The rule "previous value plus halfth of the statistically expected change" provides a good explanation of observed forecasting behavior. Some learning behavior is observed within the first 20 periods. Finally, some determinants of the dispersion of forecasts are studied.
JEL-Classification-Number: C12, C91, C92
Creation-Date: October 1993
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