Identification of Interaction Effects in Survey Expectations : a Cautionary Note

Faculty/Professorship: International Economics  
Author(s): Alfarano, Simone; Milaković, Mishael  
Editors: Wenzel, Heinz-Dieter
Publisher Information: Bamberg : Bamberg Economic Research Group on Government and Growth, Univ. of Bamberg
Year of publication: 2010
Pages: 24 ; Diagramme
ISBN: 978-3-931052-83-6
Series ; Volume: BERG working paper series ; 75 
Language(s): German
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: 30. April 2014