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

John Leonard Beshears, James Choi, Andreas Fuster, David Laibson and Brigitte Madrian

Scholarly Articles from Harvard University Department of Economics

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 ten 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.

Date: 2013
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-hpe
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Citations: View citations in EconPapers (43)

Published in American Economic Review

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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:12378032

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