Do You Know That I Know That You Know...? Higher-Order Beliefs in Survey Data

Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar and Jane Ryngaert

No 24987, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments and how these adjustments affect their economic decisions. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. The survey also quantifies cognitive limits of agents in the form of level-k thinking. We find little evidence that this departure from infinite regress helps reconcile the data and theory.

JEL-codes: C83 D84 E31 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-mac and nep-neu
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Citations: View citations in EconPapers (47)

Published as Olivier Coibion & Yuriy Gorodnichenko & Saten Kumar & Jane Ryngaert, 2021. "Do You Know that I Know that You Know…? Higher-Order Beliefs in Survey Data," The Quarterly Journal of Economics, vol 136(3), pages 1387-1446.

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Working Paper: Do You Know That I Know That You Know?: Higher Order Beliefs in Survey Data (2019)
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