Identification of Interaction Effects in Survey Expectations : a Cautionary Note

Faculty/Professorship: Public Economics  ; International Economics  
Author(s): Alfarano, Simone; Milaković, Mishael  
Editors: Stübben, Felix ; Herold, Florian
Corporate Body: BERG (Bamberg Economic Research Group)
Publisher Information: Bamberg : opus
Year of publication: 2014
Pages: 31
ISBN: 978-3-931052-83-6
Series ; Volume: BERG working paper series ; 75a 
Source/Other editions: zuerst erschienen im BERG-Verlag, 2010
Year of first publication: 2010
Language(s): English
Licence: German Act on Copyright 
URN: urn:nbn:de:bvb:473-opus4-32465
A growing body of literature reports evidence of social interaction effects in survey expectations. In this note, we argue that evidence in favor of social interaction effects should be treated with caution, or could even be spurious. Utilizing a parsimonious stochastic model of expectation formation and dy- namics, we show that the existing sample sizes of survey expectations are about two orders of magnitude too small to reasonably distinguish between noise and interaction effects. Moreover, we argue that the problem is com- pounded by the fact that highly correlated responses among agents might not be caused by interaction effects at all, but instead by model-consistent beliefs. Ultimately, these results suggest that existing survey data cannot facilitate our understanding of the process of expectations formation.
Keywords: Survey expectations; model-consistent beliefs; social interaction; networks.
Type: Workingpaper
Year of publication: 8. July 2014

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