What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting

John Beshears; James J. Choi; Andreas Fuster; David Laibson; Brigitte C. Madrian

doi:10.1257/aer.103.3.570

American Economic Review Vol. 103 No. 3 2013

What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting

John Beshears¹; James J. Choi²; Andreas Fuster³; David Laibson⁴; Brigitte C. Madrian⁵

¹ Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305. · ² Yale School of Management, 135 Prospect St., New Haven, CT 06520. · ³ Federal Reserve Bank of New York, 33 Liberty St., New York, NY 10045. · ⁴ Dept. of Economics, Harvard University, Cambridge, MA 02138. · ⁵ Harvard Kennedy School, 79 JFK St., Cambridge, MA 02138.

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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 10 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.

DOI: 10.1257/aer.103.3.570
Volume: 103
Issue: 3
Pages: 570-574
Language: en
Sources: bibtex:phds-export.bib openalex crossref

What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting

Abstract

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